Vinay Rajani
The midcap and smallcap indices have been underperforming the Nifty since May 9. From those levels, the Nifty has fallen only a percent while the midcap and smallcap indices have declined 7 percent and 9 percent, respectively.
It has been 85 sessions since January 29 when the Nifty formed an all-time high at 11,171. Of these 85 sessions, the advance-decline ratio remained positive in only 25 sessions. In 2008, the advance-decline ratio remained positive in 35 out of the 85 sessions after Nifty formed a top at 6,357 on January 8.
This data indicates that even though the Nifty is placed just 5 percent from its recent high, the market breadth has remained negative for more number of sessions this time around as compared to the 2008 bear market when Nifty fell more than 22 percent from the top in the first 85 sessions.
Last week, the Nifty surpassed the crucial resistance of the previous top placed at 10,717 and confirmed a higher top-higher bottom formation on the daily charts. The recent bottom of 10,558 has now become positional support for the Nifty. In the last three sessions, the Nifty has been forming highs around 10,770, which has now become the immediate resistance, followed by far resistance at 10,890 levels.
The Nifty is trading above its 50, 100 and 200- daily moving average (DMA), indicating a bullish trend for the short to medium term. The Bank Nifty has strong support at 25,980, while resistance is placed at 27,650 levels.
In the May Series, put writing was seen at 10,500-10,600 levels. Healthy rollover in Bank Nifty futures to the June series and buying by foreign institutional investors in the stock futures’ segment on Friday Indicates limited downside for the Nifty and Bank Nifty.
There is a huge difference in the performance of overall stocks and heavy weighted index stocks. This gap should narrow down gradually in coming days. We would advise investors to remain long on the Nifty till it sustains above 10,500. Resistances are seen at 10,770 and 10,890 levels.
Here is a list of top three stocks that could return 6-9% in the short term:
Aurobindo Pharma Ltd: Sell| Target: Rs 485 | Stop-loss: Rs 570 | Return 9%
The stock has broken down from the long-term upward sloping trend line. The price has been forming the lower top and lower bottom formation on the weekly chart.
The stock has been trading below the short-term and long-term moving averages. Volumes have been rising along with the price fall.
Oscillators have been showing weakness on the daily as well as weekly charts. Bearish rounding top formation is witnessed on the weekly charts. We recommend selling Aurobindo Pharma for the downside target of Rs 485 and a stop loss placed at Rs 570.
Muthoot Finance: Sell| Target Rs 350 | Stop-loss Rs 395 | Return 6.5%
The stock has broken down from the long-term upward sloping trend line. The price has been forming the Lower top and lower bottom formation on the weekly chart.
The stock has been trading below the short term and long term moving averages. Volumes have been rising along with the price fall for last 3 weeks.
Oscillators have been showing weakness on the daily and weekly charts. The stock has remained gross underperformer from the NBFC space for last many weeks. We recommend selling Muthoot Finance for the downside target of Rs 350, and a stop loss at Rs 395.
Chola Finance: Buy| Target Rs 1,700 | Stop-loss Rs 1,490 | Return 8%
The stock price has broken out from the Bullish “Flag” pattern on the weekly charts, indicating a resumption of an uptrend.
The price formation of higher top and higher bottom on the weekly charts indicates primary uptrend. Volumes activity has been rising along with the price rise.
Oscillators have been showing strength on Stochastic Oscillator has exited from the oversold on the weekly chart.
The stock has remained an outperformer from the NBFC space for the last so many months. We recommend buying Chola Finance for the target of Rs 1700, and a stop loss at Rs 1,490.
Disclaimer: The author is Technical Analyst, PCG Desk, 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.
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