Dharmesh Shah ICICI Direct.com
The Nifty extended its corrective decline on Wednesday ahead of May series derivative expiry as selling pressure in Cement, Pharma and PSU banking stocks weighed.
The index has been in a corrective phase over the few sessions as it reacted from a life high of 9,532 as profit booking set in after four weeks of gains and momentum oscillators approached overbought conditions.
However, the five sessions corrective decline in Nifty along with a healthy correction to the tune of average 20 percent in the recent run up in mid cap and small cap stocks have helped markets to work out of overbought conditions.
In the entire up move since December 2016, intermediate corrections have not lasted for more than five to six trading sessions. With five sessions of correction behind us, we expect the current decline to get arrested over the next couple of sessions.
Price wise, the Nifty has not corrected more than 200 points in any of the instances since December 2016 lows. As Nifty has already corrected 190 points from recent peak (9,532) and time wise correction approaches maturity along with healthy price correction in broader markets, we believe further decline towards 9,300 presents an incremental buying opportunity for a pull back towards 9550 levels.
The immediate support base for the index is placed at 9,300 regions being the 50% retracement of current up move (9,075 to 9,532) and the higher low formed in early May 2017
Here is a list of top 4 stocks which can give up to 21% return in the next six months:
Larsen & Toubro: BUY| Target Rs2035| Stop Loss Rs1,540| Upside 20%| Time Frame 6 months
The share price has been in a healthy sideways consolidation over the past four weeks marking an intermediate breather after a decent run up during March – April 2017.
A shallow price correction over past few weeks represents a pennant formation on the weekly time interval chart. A pennant formation is a bullish continuation pattern marking a breather after the strong rally and provides fresh entry opportunity.
Earlier, the stock has signalled a bullish structural turnaround after registering breakout from a healthy corrective phase of two years between 2015 and 2016.
The steady up move since the start of CY2017 has seen the stock post a faster retracement of the July-December 2016 fall (Rs1,615 to Rs1,302) as the five-month decline was completely overhauled in less than four months.
Faster retracement of the major down move and formation of higher high and higher low on the monthly/quarterly scale indicates conclusion of the two-year corrective phase and resumption of the primary uptrend.
JK Tyre & Industries: BUY| Target Rs198| Stop Loss Rs146| Upside 21%| Time Frame 6 months
The corrective decline over past few sessions has led the JK tyres share price to its support level around Rs160 as it is the breakout level above its 2014 and 2016 price peaks.
We expect the key historical resistance to reverse its role as support amid ongoing healthy corrective decline and therefore offers fresh entry opportunity.
Structurally, the share price of JK Tyre remains in a secular uptrend forming rising peaks and troughs on the long term charts. Within the structural uptrend, the stock has witnessed periodic secondary corrections that have provided fresh entry opportunities.
Recent developments on the price front suggest that the stock has concluded an elongated corrective phase in the last two years as it broke out of Bullish Cup and Handle formation during April 2017. Stock looks poised to embark upon its next major up move thereby providing a fresh entry opportunity to medium term investors
Maruti Suzuki: BUY| Target Rs7750| Stop Loss Rs6520| Upside 13% | Time Frame 6 months
The share price of Maruti has been a strong outperformer in the auto space as it strides northward in a rising peaks and troughs manner on the long term chart amid continued investor participation at elevated levels
The entire up move since March 2016 has occurred in a well-defined rising channel highlighting a structured up move. The sharp up move from November 2016 lows (Rs4765 placed at the lower band of rising trend channel) saw the stock forming a fresh all- time high of Rs6,233 during February 2017.
The sideways consolidation during March and April 2017 resulted in the stock once again validating the lower band of the rising channel placed at Rs5929 and helped the stock to work out off overbought conditions.
The stock has recently resumed its fresh up move and registered a fresh all-time high of Rs6,979 during the previous week’s trade. We believe the stock is attractively poised after the recent consolidation and provides a fresh entry opportunity with a favourable reward/risk setup to ride the next up move.
Bajaj Finserv: BUY| Target Rs4580| Stop Loss Rs3,780| Upside 15%| Time Frame 3 months
The share price of Bajaj Finserv has been in an intermediate corrective phase over past four weeks after hitting its life high of Rs4750 levels.
The decline of 20 percent has brought the share price towards lower band of the rising trend channel which encompasses price action since October 2016 till date.
The share price has approached its key support zone around Rs3750 levels as it is the confluence of following technical parameters
At Rs3800, current price decline has achieved equality with its November – December 2016 decline - 50% retracement of January – April 2017 rally is placed at Rs3650 levels
The sharp decline over past four weeks has led the stochastic oscillator to oversold condition with the current reading of 14. We believe the share price will attract buying support near value area in coming sessions.
Disclaimer: The author is Head Technical Designation - AVP, ICICI Direct.com. 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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
