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Last Updated : Mar 08, 2018 10:59 AM IST | Source: Moneycontrol.com

Nifty down 10% from highs; top 3 stocks which could give up to 15% return in 3 months

In the current week, selling pressure was intensified on the breach of lower band of the broader consolidation range of 10300.

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By Dharmesh Shah

ICICI Direct.com Research

Equity benchmarks edged lower for a sixth consecutive session to end at their two month’s lowest level of 10154. In the current week, selling pressure was intensified on the breach of lower band of the broader consolidation range of 10300.

Contrary to our view, the Nifty violated last one month’s base of 10300 signalling further loss of momentum, implying that the current corrective phase could extend over the coming weeks.

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The momentum oscillators have entered the oversold territory, owing to almost 500 points fall of last six sessions, hence we advise not to go aggressively short at the current juncture.

On the structural front, we believe the current decline is part of a bull market. Since September 2017, the Nifty has followed a tendency of not falling more than seven sessions in a row, currently Nifty has already fallen for six sessions, leading stochastic indicator to trade in oversold territory (placed at 7), thus supportive efforts from key value area of 10000 – 10100 cannot be ruled out in upcoming sessions.

However, a follow-through strength above Monday’s gap area (10447–10429) will be required to open up positive options. Although the Nifty has breached the February 2018 lows of 10276, we advise not to panic as the index has strong support in the 10100-10000 zone, which would offer incremental buying opportunity to accumulate quality stocks, as it is the confluence of:

a) Since CY10, in four instances, intermediate corrections following seven to nine weeks of consecutive higher high - lows, measured 9-12% correction, leading the way to a resumption of the uptrend. In the present scenario, after seven weeks of higher high low (towards January 2018 high), a similar magnitude of correction projects strong support around 10000
b) Placement of Gujarat election result panic low of 10075

c) The placement of 200 days exponential moving average is at 10100

Here is a list of top 3 stocks which could give up to 15-17% return in next 6 months:

TCS: BUY| CMP Rs3027| Target Rs3410| Stop Loss Rs2850| Return 13%| Time Frame 6 months

The share price of TCS has been trading in a secular up trend forming a higher high - low on the long-term chart. After registering highs of 2840 in October 2014, the stock has undergone a secondary phase of consolidation in a broader range of 2850–2120. In January 2018, the stock recorded a breakout from the three-year-long consolidation, indicating a resumption of the primary uptrend.

Recently, the stock has seen a throwback to a new lifetime high of 3259, helping to work off the overbought condition of the weekly stochastic oscillator.

The overall price structure makes us believe the stock has confirmed the three years long consolidation breakout by retesting it and is now well positioned to accelerate the momentum, thereby providing an opportunity to create a fresh long position from a medium-term perspective

The last leg of the up move was captured in a well-defined parallel rising channel drawn adjoining lows in November 2016 – July 2017 calculated from the high of February 2017.

This eventually aided the stock to conclude the three years long consolidation, indicating a resumption of the uptrend

We believe the recent throwback has approached its maturity and is likely to resume its uptrend as it is the confluence of:
a) Throwback arrested near 50% of its earlier six weeks rally (| 2494–3259), placed at | 2876

b) Base formation near three week’s identical lows of | 2895

In a nutshell, we believe the stock is likely to outperform the broader market as it has set the stage to unfold the next leg of the rally towards | 3410 as it is the implicated breakout target of the aforementioned rising channel.

Ipca Laboratories: BUY| CMP Rs673.5| Target Rs775| Stop Loss Rs621| Return 15%| Time Frame 1 months

The share price of Ipca Laboratories re-tested the recent breakout of the 21 months consolidation range of Rs400-650 signalling resumption of up move and offers fresh entry opportunity.

The entire consolidation of the last 21 months has taken the shape of a double bottom and the breakout above the double bottom pattern signals end of the secondary corrective phase and resumption of the primary uptrend

The weekly MACD is in strong uptrend forming higher high and higher low and is seen rebounding taking support at its nine period’s average thus validates positive bias in the stock in the short term

Based on the aforementioned technical observations, we believe the stock has concluded a healthy corrective phase and is set to embark upon its next up move going forward. We expect the stock to head higher towards 790 levels being the 161.8% external retracement of the entire previous decline (642-400) placed around 790 levels.

Johnson Controls Hitachi – Air Conditioning (JCHAC): BUY| CMP Rs2306 | Target Rs2690| Stop Loss Rs2095| Upside – 17%| Time Frame 6 months

The stock has been trading in a secular up trend forming higher high - low formation, captured in a well-defined upward sloping channel on the long-term chart.

Currently, the stock has approached its key value area 2150 and formed higher high after four weeks correction, assisting momentum indicator to work off the overbought condition on the stochastic oscillator.

Thus, we believe the stock has undergone a healthy corrective phase that has paved the way for next leg of up move towards | 2698.

The stock recorded an all-time high of Rs2775 on October 2017 and since then consolidated for eighteen weeks. We believe consolidation is approaching its maturity near key value area of | 2150, being the confluence of the following evidence:

a) Currently poised at the lower band of upward sloping channel encompassing the uptrend since November 16 low.
b) 80% retracement of the last leg of up move of October 2017 (| 2001 – |2775) levels, placed at | 2156

c) Placement of 52 weeks average at | 2137

Last 18 weeks price action has been enclosed within long candle of mid-October 2017 (2001- 2775). A shallow price correction with elongated time wise consolidation highlights the strong price structure

The current price action indicates conclusion of secondary corrective phase, thus offering a fresh entry opportunity. We expect, the stock to resolve higher and inch upward to test our target area of Rs2698 in the medium term being the swing high of January 2018.

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts 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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First Published on Mar 8, 2018 09:41 am
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