Considering the technical evidence discussed above, we believe that, short-term pullback rally is on the cards and bottom of 10,750 levels should not be violated soon.
The Nifty50 continued its losing streak for the fifth day in the row where it fell sharply by 175 points on Monday as brokers square off positions or sell collaterals to account for mark-to-market losses.
A weak rupee and higher crude prices also hurt the sentiment. During the last five trading sessions, the Nifty has already corrected 550 odd points. Technical evidence points towards a short-term bottom.
On September 21, 2018, the Nifty fell more than 3.3 percent in intraday and recovered 75 percent of the loss at closing. Normally, this kind of a bounce-back is seen as a short-term turning point.
We studied data all the way back to August 2002, whether this hypothesis holds true. We looked for 3 percent fall and minimum recovery of 60 percent from low of the same day. We have found 4 such instances, and in all the four instances, it turned out to be a bottom.
Moreover, last week’s intraday low of 10,866 is the 50% retracement of the entire upswing seen from 9,952 to 11,760. Nifty’s 200-day simple moving average is also placed around 10,750 levels.
So with historical evidence on our side, we can say that we are near the bottom and we may see a pullback rally from here on.
Considering the technical evidence discussed above, we believe that, short-term pullback rally is on the cards and bottom of 10,750 levels should not be violated soon. On the higher side Nifty is likely to find resistance around 11200 level where Calls have been written
Here is a list of top three stocks which could give 8-10% return:
Axis Bank: LTP: Rs 597| Buy| Target: Rs. 645 | Stop-Loss Rs 570 | Return 8%
After making an all-time high during the month of August, the Stock price has nearly corrected 8% during this month. However, the primary trend of the stock is positive where the stock is trading above its 200-day Simple moving average.
Axis Bank is also outperforming other private sector banks. The stock price has reached near to a strong support of Rs 585 levels.
We believe that recent correction in the stock price is a running correction in the overall uptrend. Therefore, we recommend accumulating Axis Bank in the range of Rs 585-597 for the upside target of Rs 640, keeping a stop loss below at Rs 570.
Deepak Nitrite: Buy| LTP: Rs 270| Target: Rs. 295 | Stop-Loss Rs 255 | Return 9%
During the last week, Deepak Nitrite has broken out on the daily chart by closing above the crucial resistance level of Rs 284 levels. Primary trend of the stock is positive where it is trading near its all-time high level.
The stock price is also trading above its 20 and 200-day simple moving averages indicating a bullish trend for the medium to long-term trend.
The stock price has been making higher top higher bottom formation on the daily chart. We believe that recent correction in the stock price is a running correction in the overall uptrend.
Therefore, we recommend accumulating Deepak Nitrite in the range of Rs 260-270 for the upside target of 295, keeping a stop loss below Rs 255.
Karnataka Bank: Sell| LTP: Rs 101| Target: Rs. 90 | Stop-Loss: Rs 106 | Return 10%
Karnataka Bank has broken down on the weekly chart by closing below Rs 104 levels. The stock price has also closed at a two-year low with volumes rising during the last couple of days.
The stock price is trading below its 5, 20 and 200-day SMA indicating a bearish trend for the short to medium term. Therefore, we recommend selling Karnataka Bank for the downside target of 90, keeping a stop loss above Rs 106.Disclaimer: The author is a Technical & Derivatives Analyst at 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.