It is time to "make hay while the sun shines" for Midcap and Smallcap stocks. Aggressive long bets can be taken in good quality midcap and smallcap stocks
The Nifty50 closed at the new all-time closing high of 11,924 on May 27. The index has recouped all the losses which were seen from April 18, when the index was trading at 11,856 to May 14, when it hit 11,108 due to global market weakness.
The Nifty50 has formed a "Cup and Handle" pattern on the weekly charts, which indicates a continuation of the primary bullish trend after running correction.
The immediate target for the Nifty is seen at 12,430, which happens to be the 138.2 percent Fibonacci retracement of the entire swing seen from 11,760 (August 2018 Top) to 10,004 (October 2018 bottom).
As far as the support level is concerned, it is seen around 11,700 for the Nifty.
The technical setup for Bank Nifty seems better than Nifty on the charts and the same could help the index to outperform. The target for Bank Nifty is seen somewhere around 32,800 levels. Support levels for the index is seen in the range of 30,600-30,700.
The Nifty Midcap and Smallcap indices have developed a Golden Crossover on the daily charts last week which means that 50-DMA has crossed-over the long term average of 200-DMA.
Golden Cross is a sign of medium to long term bullish trend reversal. Though Nifty registered new all-time high recently, Nifty Midcap index is still down 18 percent and the Nifty Smallcap index is down by about 31 percent from their respective all-time highs registered in January 2018.
The Nifty Midcap Index is likely to form a bullish "Hammer" candlestick pattern on the monthly charts. The candle is being formed at the very strong support derived from long term upward sloping trend line on the monthly charts.
For the last one year, the performance gap between Midcaps and Largecap has widened significantly and the same is expected to narrow down gradually from here.
To conclude, we believe that it is time to "make hay while the sun shines" for Midcap and Smallcap stocks. Aggressive long bets can be taken in good quality midcap and smallcap stocks.
The market breadth is expected to improve with a big margin from here. We expect Nifty Midcap and Smallcap Indices to give 10-15 percent return from these levels. As far as Nifty is concerned, it is likely to test the 12,430 target in the short term.
Here is a list of top three stocks which could give 12-15 percent return in the next one month:
RBL Bank: Buy | LTP: Rs 697 | Target: Rs 781 | Stop-Loss: Rs 638 | Upside 12%
The stock broke out from the nine weeks’ price consolidation. The crucial resistance level of the stock which was placed at Rs 690 was taken out on the closing basis.
Volumes during the recent breakout saw a significant jump, and the stock is now trading above all the important moving averages. It is forming higher tops and higher bottoms on the weekly and monthly charts.
The stock witnessed a Triangle Breakout on the daily charts which indicate a continuation of the bullish trend. Indicators and Oscillator setup have turned bullish on the daily as well as weekly charts.
Considering the technical evidence discussed above, we recommend buying the stock at CMP and average it around Rs 660, for the target of Rs 781, and keep a stop loss at Rs 638 on closing basis.
HSIL: Buy | LTP: Rs 299 | Target: Rs 345 | Stop-Loss: Rs 280 | Upside 15%
The stock price has developed a golden crossover of 50 and 200 DMA, indicating medium to a long-term bullish trend reversal.
The stock formed an inverse head and shoulder pattern breakout on the weekly charts. The downward sloping trend line breakout is witnessed on the monthly charts.
Considering the technical evidence discussed above, we recommend buying the stock at CMP and average it at Rs 287, for the target of Rs 345, and keep a stop loss at Rs 280 on closing basis.
Surya Roshni: Buy | LTP: Rs 262 | Target: Rs 300 | Stop-Loss: Rs 242 | Upside 15%
The stock price has taken out the strong resistance formed around its 200-DMA. The stock recorded a breakout from the downward sloping channel on the daily charts.
The volumes have also gone up along with the price rise in the last 6 sessions. The stock is very near to develop Golden Crossover of 50-DMA and 200-DMA crossover.
Considering the technical evidence discussed above, we recommend buying the stock between CMP and Rs 250 for the target of Rs 300, and keep a stop loss at Rs 242 on a closing basis.
(The author is a Technical and Derivative Analyst at HDFC Securities.)Disclaimer: 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.