After a long weekend, the market finally gave a strong breakout of long downward sloping resistance trend line on August 16 with a gap-up opening and closed above 17,800 for the first time since April, backed by auto, banking and financial services, oil and gas, and select metal and pharma stocks.
The benchmark indices extended their northward journey for the sixth consecutive session with the BSE Sensex rising 379 points to 59,842, and the Nifty50 climbing 127 points to 17,825 and formed a Doji kind of pattern on the daily charts, indicating indecisiveness among bulls and bears about further market trend.
The rally was strong in the broader space on positive market breadth. The Nifty Midcap 100 index jumped 1.45 percent and Smallcap 100 index rose 0.95 percent as about 1,164 shares advanced against 810 declining shares on the NSE.
Stocks that were in action included HDFC Asset Management Company and Escorts Kubota which were the biggest gainers in the futures & options segment.
HDFC AMC surged 11.5 percent to Rs 2,181, the highest closing since April 18, and formed a large bullish candlestick pattern which resembles a Bullish Engulfing kind of pattern formation on the daily charts with robust volumes. The stock has strongly broken out the four-month-long downward sloping resistance trendline adjoining April 4 and August 3.
Escorts Kubota spiked 9.6 percent to Rs 1,842.55 after a gap-up opening and moved closer to previous swing high of April 5, forming a robust bullish candlestick pattern with large volumes on the daily charts. It has also decisively broken out downward sloping resistance trend line adjoining previous swing highs.
Skipper was another stock that we have selected for trade spotlight, rising 9.3 percent to Rs 60.75 and formed strong bullish candlestick pattern on the daily charts with robust volumes. Also there was Morning Star kind of pattern formation after Tuesday's rally, which is bullish candlestick pattern and generally shows signs of potential recovery.
Here's what Ruchit Jain of 5paisa recommends investors should do with these stocks when the market resumes trading today:
The Auto space has been buzzing since the last few months and has shown a good outperformance in this period. Although Escorts went through a price-wise correction in April and June, it has seen a good buying interest in last one and a half month and we saw up move supported with good volumes in Tuesday's session.
The RSI (relative strength index) has given a positive crossover and is indicating a positive momentum. Hence, traders with existing positions should continue to ride the trend until any reversal is seen. The immediate support for the stock is now placed around Rs 1,730-1,750 while prices can move towards its previous high of Rs 1,900-1,930 range.
The stock has recently went through a corrective phase and after forming a support base near Rs 50. It has seen a pullback move in Tuesday's session. However, it is too early to interpret this as a reversal as we are yet to observe a ‘Higher Top Higher Bottom’ structure.
Hence, this up move should just be seen as a pullback move. The momentum readings have given a positive crossover so further pullback towards resistance of Rs 68 is possible in the near term.
Traders can look to lighten up longs around this resistance. On the flipside, the immediate support for the stock is now placed around Rs 55.
The stock had seen a significant underperformance in the recent corrective phase and had even breached Rs 1,700 mark in the month of May. However, the stock saw a pullback move in the last few months and the stock has now given a breakout and has closed above its 200-day EMA (exponential moving average).
The momentum readings have a positive crossover and hence, the stock could retrace its previous corrective phase. The stock could retrace upto 38.2 percent of the previous correction which is seen around Rs 2,278 while Rs 2,000-2,050 will be seen as an immediate support zone.
Traders with long positions can hold their positions for the above mentioned target and ride the trend with a trailing stop-loss method.
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