Vinay Rajani
The Nifty is currently trading above its 20, 50, 100 and 200-day daily moving average (DMA), which indicates a positional uptrend. However, the 5- and 10-DMA were breached during Monday’s trade.
After turning overbought, the relative strength index (RSI) oscillator has formed a negative divergence pattern on the Nifty daily charts, which indicates the recent upmove is losing strength. This pattern emerges when price makes a higher top and oscillator makes a lower top. The same has been observed on the daily charts, indicating chances of a correction from current levels.
The bearish trend reversal would be confirmed only when the Nifty breaks below its support of 11,340 support derived from the trend line adjoining multiple bottoms seen in June and July. Any level below 11,340 would drag it towards the next support range of 11,170-11,210. There has been an unfilled gap between 11,185 and 11,210 formed on July 27. The previous top for the Nifty on the daily charts is placed at 11,171.
Almost all sectoral indices have reached the overbought zone on daily charts, indicating unfavourable risk-reward ratio in fresh longs from current levels. IT is the only sector which looks convincing on the short term charts at this point of time and taking long positions in this sector could enhance trading returns.
From the currency perspective, the rupee has reached all-time closing low of 69.93 to the dollar. The USD-INR pair has broken out from the last one month’s consolidation and is all set to extend the gains. The technical pattern indicates that the rupee could further depreciate towards Rs 71 per dollar. This could impact Indian equity markets negatively in coming days.
As far as the Bank Nifty is concerned, it has formed a Bearish Engulfing pattern on the daily charts on August 10, which could reverse the short term trend.
The RSI oscillator has also formed a negative divergence pattern on the daily charts. Positional support for the Bank Nifty is seen at 27,200 levels. Resistance for the index is placed at 28,400, above which the bearish trend reversal would be negated.
The positional trend of the Nifty is bullish, but a correction cannot be ruled out. If the index breaks 11,340, it could extend the fall further. 11,200 should be utilised to initiate fresh long positions for the ultimate target of 11,768. IT sector should remain in focus for the short term trades.
Here is a list of top three stocks that could return 6-14 percent in the next 1 month:
Infosys: Buy| LTP: Rs 1409 | Target: Rs. 1495 | Stop-Loss: Rs 1347 | Return 6%
The stock has broken out from the price consolidation which held in last 1 month. The stock has registered new all-time high with healthy volumes. Recent depreciation in rupee against the dollar is going to impact positively to the entire IT sector.
The rupee has reached the all-time low level, near to 70. Nifty IT Index has also broken out from the last 1-month price consolidation. Being large cap IT Company, Infosys is likely to continue its upwards journey with new milestones.
Considering the technical evidence discussed above, we recommend buying the stock at CMP for the target of Rs 1495, keeping a stop loss at 1347 on a closing basis.
Everest Industries: Buy| LTP: Rs 552.5 | Target: Rs. 630| Stop-Loss: Rs 510| Return 14%
The stock has broken out from the downward sloping channel on the weekly chart. Volumes have gone up along with the price rise in the last two weeks.
Higher tops and higher bottoms on the weekly charts indicate positional uptrend. The stock price is placed above all important moving average parameters, indicating a bullish trend. Oscillators like RSI and ADX have been trading bullish on the short term charts
Considering the technical evidence discussed above, we recommend buying the stock at CMP for the targets of 630, keeping a stop loss at 510 on a closing basis.
Crompton Consumers: Buy| LTP: Rs 267 | Target Rs.302 | Stop-Loss: Rs 250 | Return 13%
The stock price has broken out Breakout from price consolidation pattern holding for last 6 months between 215 and 250. Volumes have gone up along with the price rise in last one month.
Multiple bottoms formed at 220 odd levels and stock reversed northward thereafter. The stock price has reached above 20, 50 and 200 DMA. Indicators like MACD and ADX have turned bullish on the weekly charts.
Considering the technical evidence discussed above, we recommend buying the stock at CMP for the target of 302, keeping a stop loss at 250 on a closing basis.
Disclaimer: The author is a Technical Analyst, 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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