A sharp sell-off was seen in the Nifty due to liquidation of long positions as traders turned cautious amid US-China trade tensions.
The recent market data has turned slightly negative and is indicating probability of further profit booking. Call writers are active in 10,700, 10,800 and 10,900 strikes, which indicate limited upside.
The continuous build-up of shorts by foreign institutional investors (FIIs) indicates cautiousness. The levels of 10,700-10,680 will remain crucial this week as indicated by option open interest concentration.
If the Nifty falls below the 10,680 mark, it could correct to 10,500 levels on the back of further selling. On a bounce, the index will face strong resistance around 10,800-10,850 levels.
If we look at the option open interest concentration, 10,700 put strike still holds the highest OI with more than 52 lakh shares, followed by 10,600 strikes with nearly 46 lakh shares.
On the call option side, the maximum OI is seen at 11,000 strikes, followed by 10,800 strikes with nearly 54 lakh and 45 lakh shares, respectively.
Here is a list of top 3 stocks that could return 11-13% percent in the short term:
Torrent Pharmaceuticals: Buy| Target: Rs 1,670| Stop loss: Rs 1,360| Return 13%
On daily charts, the stock had been consolidating in a broader range of Rs 1,230-1,430 since the beginning of the year which has led to a formation of an inverted head and shoulder pattern.
This week a fresh breakout was witnessed above the neckline of the pattern formation after prolonged consolidation which indicates more upside in prices moving forward. Traders can accumulate the stock in a range of Rs 1,470-1,490 for the target of Rs 1,670 and a stop loss below Rs 1,360.
Bata India: Buy| Target: Rs 900| Stop loss: Rs 760| Return 11%
After three months of prolonged consolidation, the stock witnessed a fresh breakout above the key resistance level of Rs 825 along with hefty volumes.
Additionally, the stock has also given a breakout above the neckline of the inverted head and shoulder pattern visible on the weekly charts.
The follow-up buying after the breakout can be seen in the stock as secondary indicators like the RSI and stochastic are also supporting the up move. Traders can accumulate the stock in a range of Rs 810-825 for the upside target of Rs 900 and a stop loss below Rs 760.
Natco Pharma Limited: Buy| Target: Rs 955| Stop loss: Rs 780| Return 13%
The stock has given a fresh breakdown below Rs 900 levels and its 200-days exponential moving average in the early 2018 and tested Rs 700 levels in the short span.
The price has been consolidating since then as the stock is fluctuating in the range of Rs 700-830. Last week, we have observed a V-shape recovery in prices from the lower band along with higher volumes which suggest for lower levels buying in the stock.
Now, a breakout above the resistance level of Rs 845 can further trigger follow-up buying in the stock to once again reclaim above 200-days EMA. Traders can buy the stock above Rs 845 levels for the upside target of Rs 955 levels and a stop loss below Rs 780.Disclaimer
: The author is Senior Research Analyst, SMC Global Securities Ltd. The views and investment tips expressed by investment experts 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.