If the index closes above 10,800, it would result in a further short-covering, this might push it to 10,950 levels.
The Nifty rose 259 points in the last three sessions. It closed at 10,689 levels on Monday. The index managed to close above its resistance level of 10,670, which is the 50% retracement level of the entire fall seen from 10,929 (May 15 top) to 10,417 (May 23 bottom), and above the 20-day simple moving average (SMA) placed at 10,669. This indicates a bullish trend reversal.
It has also reclaimed levels above all important moving averages, indicating a resumption of the uptrend. The recent slide in crude prices and strong dollar-rupee improves India’s macroeconomic situation and augurs well for the market.
The midcap and smallcap indices have formed a Dragon Fly Doji candlestick on the weekly charts, which indicates a bullish trend reversal. We could see the midcap and smallcap indices outsmarting the Nifty in days ahead.
Selling based on market regulator’s Sebi reclassification of mutual fund schemes also seems to have ended.
In the derivatives space, we have seen long positions being built in Nifty and Bank Nifty futures’ on Monday. The Nifty open interest put-call ratio, after falling sharply to 1.18 levels last Wednesday, rebounded sharply to 1.53 levels.
Rise in the Nifty OI PCR is largely on the back of put writing at 10,500-10,600 levels. Moreover, 10,500 has witnessed the highest OI among Nifty May puts, indicating that the level could act as strong support in coming days.
On the higher side, the Nifty is likely to find immediate resistance in the vicinity of 10,750-10,800 levels, where calls have been written. If the index closes above 10,800, it would result in a further short-covering, this might push it to 10,950 levels.
We advise accumulation of long positions in the Nifty with stop loss of 10,500 and a target of 10,800 and 10,950.
Here is a list of top three stocks that could offer up to 6-10 percent returns:
Jamna Auto: Buy| Target: Rs 106 | Stop-loss: Rs 90 | Return 10%
Jamna Auto has given a bullish trendline breakout on the daily chart with higher volumes by closing above the downward sloping trendline, adjoining the highs of 02-May-2018 and 16-May-2018.
It has also managed to close above the 20-day simple moving average which is placed at Rs 94.80 levels, indicating a trend reversal.
Short term moving averages are trading above the long-term moving averages which indicate a bullish trend for the short to medium term.
Oscillator like RSI is showing strength in the stock for the short term. Therefore, we recommend buying Jamna Auto for the upside target of Rs 106, and a stop loss placed below Rs 90.
Karnataka Bank: Buy| Target: Rs 130 | Stop-loss Rs 117 | Return 6%
After forming multiple bottoms around Rs 107 odd levels during the last couple of months, stock price reversed northwards to close above its 5 and 20-DMA with higher volumes.
The stock price has also given a bullish trendline breakout on the daily chart by closing above the downward sloping trendline, adjoining the highs of 26-February-2018 and 18-May-2018. Momentum indicators and Oscillators like RSI and MACD are showing strength in the stock for the short to medium term.
Privative banks as a sector looking good for the short term on the charts. Therefore, we recommend buying Karnataka Bank for the upside target of Rs 130, keeping a stop loss below Rs 117.
Tata Sponge: Buy| Target: Rs 1,180 | Stop-loss: Rs 1,070 | Return 6%
The stock price has broken out from the falling wedge with a significant jump in volumes on the daily charts. The stock has been holding above its short term and long term moving averages indicating a bullish trend for the short to medium term charts.
The momentum indicators and Oscillators like RSI and MACD are showing strength in the stock for the medium term. Therefore, we recommend buying Tata Sponge for the upside target of Rs 1,180, and a stop below Rs 1,070Disclaimer: The author is Technical & Derivatives Analyst at HDFC Securities. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.