By Pritesh MehtaIIFL Wealth & Asset Management
Finally, Nifty confirmed a breakout from a narrow trading range of the last two weeks as it broke above the resistance placed at 9,370. Trading range breakouts must always be treated with respect.
Traders should not focus on the point that markets have run up a lot (up 15 percent in 2017). In fact, the daily RSI is trading well below the peak of March (i.e. 77.06). RSI line on daily chart turned up in collaboration with rising price moves, however, it’s still quoting below the level of 70.
Since April 2017, Nifty has been marching higher towards new all-time higher zone; while RSI line showed negative divergence marking lower highs, however, such divergence does not carry any negative implication until it’s negatively confirmed on the price scale.
Meanwhile, PSU Bank index is showing some signs of fatigue after it reversed from PRZ of the bearish gartley pattern. A 90-degree move from the peak of 9367 is placed at 9270 & four-digit gann number appears at 9265.
The same also coincides with the lower-end of the recent trading range i.e. 9,250. As long as the index sustains above 9,250-9,270 zone, the positive bias will prevail in the market.
Currently, Nifty is in a sweet spot, where we are likely to see new highs every other day and in case there is a retracement towards the lower-end of the recent trading range, it will provide an opportunity to make a fresh entry point.
Top five ideas to buy which could give up to 12% upside in short term:
Reliance Industries: BUY| Target Rs 1420| Stop Loss 1330| Return 4%
The stock is showing a trait of a counter which is trending higher after it took support at its 50-DMA and provided a pullback. Reliance Industries which has outperformed by 25 percent in 2017 was on the receiving end of last week of April 2017.
Moreover, the 50-DMA support also coincides with the support of its four-digit gann number and pulled back. Also, the second line of defence as per gann rule of 8 provided respite post the recent decline.
Correction of the last two weeks could be termed as a sideways correction as it managed to find support at its short-term trendline. Uptrending stocks tend to find support at declines and also recover sharply.
Based on above rationales, we recommend a buy on Reliance Industries above Rs1,357 with a stop loss of Rs1,330 for a target of Rs1,430.
Disclosure: Reliance Industries owns Network 18 and Moneycontrol.com.
Adani Ports: BUY| Target Rs 403| Stop Loss Rs 345| Return 11%
Adani Ports is currently going through a phase of consolidation at the top of its rally. It is showing characteristics of a stock which is in a strong uptrend. It is moving higher along with the support of its 13-WEMA since January 2017, wherein every pullback towards this critical moving average has resulted into buying opportunity.
Since the last six weeks, the sideways consolidation at the top of its trend can be termed as bullish consolidation. The outcome of such sideways movement is dealt positively during an uptrend.
Moreover, it continues to trade above the gann number of 325. A move above Rs361 would result in a shift in the orbit on the upside and would eventually confirm a breakout from the bullish consolidation pattern. Based on above parameters, we recommend a buy on Adani Ports above Rs361 with a stop loss of Rs345 and a target of Rs403.
Suven Life Sciences: BUY| Target Rs 222| Stop Loss 187| Return 12%
Suven went through a sharp phase of correction after making a high of Rs339 in April 2015. Recent low of Rs149 (made in November 2016) was placed near the 180 degrees by applying a gann square of 9 from the peak of Rs339.
After completion of the cycle, the downside move of the stock came to an end and the stock began a process of bottoming out. It is a process, in which the stock moves around in a narrow range, doing nothing spectacular.
Suven Life for last six months was stuck between Rs192-149. In Thursday’s trade, it confirmed a breakout from the base building process, suggesting a fresh move on the upside in the near term.
The stock managed to test the midpoint of the current gann channel which indicates strength in the current move. As per above mentioned technical parameters, we recommend a buy on Suven Life Sciences above Rs197 with a stop loss of Rs187 and a target of Rs222.
Aurobindo Pharma: BUY| Target Rs 665| Stop Loss 600| Return 6%
Support of 187-WMA and the previous low of Rs582 seen in February 2016 came to the rescue of Aurobindo Pharma. In line with the weakness in the entire pharma space, Aurobindo Pharma went through a torrid time since March 2017.
However, it is showing first signs of reversal after it completed its 180 degrees by applying a gann square of 9 from the peak of Rs895. Also, the same coincides with the midpoint of current gann channel.
So, multiple points of support has resulted in a recovery of ~6% in this week’s trade. We expect the stock to build on recent momentum and continue towards the target of Rs665 in the near term.
Based on above rationale, we recommend a buy on Aurobindo Pharma above Rs620 with a stop loss of Rs600 and a target of Rs665.
DLF: BUY| Target Rs 225| Stop Loss Rs 194| Return 11%
After being in a phase of consolidation at the top of its rally, it finally staged a breakout on the upside in Thursday’s trade. It is showing the trait of a stock which is in a strong uptrend since December 2016.
A move prior to recent breakout could be termed as flag pattern. Flags are considered to be a continuation pattern in nature; we expect the stock to replicate the momentum it had in April after confirming a breakout in this week’s trade.
In fact, ratio chart of Realty index against the Nifty index suggests a strong outperformance from the realty stocks. It is a classic case of a Phoenix rising from the ashes.
After undergoing sharp decline since 2010, ratio line of NSE Realty/NSE Nifty has formed a base structure. Traders can buy DLF above Rs202 with a stop loss of Rs194 and a target of Rs225.
Disclaimer: The author is Head of Technical Research – IIFL Wealth & Asset Management. The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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