Vinay Rajani HDFC Securities
The Nifty had been trading in a bearish trend for previous three weeks, and this week also it started with a negative bias, where Nifty lost 74 odd points.
From the all-time high of 11171 which was registered on 29th Jan 2018, Nifty saw a total fall of 895 points to 10276 on the 6th February 2018.
PSU Banks stocks underperformed the benchmark index Nifty and other sectoral indices as it dipped more than 25 percent in the last 16 sessions.
Out of 21 PSU banks trading on the Exchange, 8 stocks are down more than 40 percent from their 6-months high, while 17 PSU banks are down more than 30 percent.
The average fall in all PSU banks is more than 37 percent from their respective 6-months high.
Most of the PSU banks looks extremely oversold on their charts and it would be advisable not to initiate fresh shorts from current levels.
A pullback from these levels in PSU banks cannot be ruled out. A pullback could be as sharp as 10-15% from the current levels.
As far as Nifty is concerned, we see strong support at 10300 odd levels, which happened to be the support provided by upward sloping trendline, adjoining the bottoms of 6th Dec 2017, 18th Dec 2017 and 6th Feb 2018.
On Monday, Nifty made a low around the trendline support and managed to recover more than 90 points from the low, to close at 10378. A 200-DMA for the Nifty is currently placed at 10075, which is expected to act as a far Support.
Oscillators like MACD, RSI, and KST all are in a bearish mode on the short-term charts. Nifty is trading below its 20, 50 and 100 days EMA, which indicates a positional bearish trend.
To conclude, it would be advisable to initiate fresh shorts only below 10300 in the Nifty. Resistance for the same would remain in the range of 10600-10640.
Here’s is a list of top 3 stocks which could give up to 7% return in the short term:
TCS: BUY| Target Rs. 3100 | Stop-loss Rs 2850 | Return 6%
In the month of January 2018, TCS broke out on the long-term monthly charts, with a significant rise in the volumes. From the bottom of 2494, TCS rose to 3259 in the period from 18th December 2017 to 24th Jan 2018.
At present, TCS is placed 10 percent lower from its all-time high of 3259. The stock has completed the 50 percent retracement of the entire 30 percent upswing.
The short-term moving averages have been trading above long-term moving averages. Higher tops and higher bottoms are witnessed on the weekly and monthly charts, indicating primary uptrend.
Oscillators like MACD, KST, and ADX have been showing strength in the medium and long-term chart. The recent price fall seems to be a running correction in the overall bullish trend for TCS.
We recommend buying TCS for the upside target of 3100, with a stop loss placed at 2850.
Bharat Forge: BUY| Target Rs. 775 | Stop-loss Rs 715 | Return 5%
The stock recently registered a new all-time high at 785 on the 14th February 2018. The stock has been an outperformer for the last many months and minted a lot of money to its investors.
The primary trend of the stock has been bullish with higher tops and higher bottoms. The stock witnessed a correction of 8 percent in the last four sessions, due to weakness in benchmark indices. Prospects of the stock look very good going ahead.
The short-term moving averages have been trading above their long-term moving averages. Oscillators like MACD, KST, and ADX have been showing strength in the medium and long-term chart. We recommend buying Bharat Forge for the upside target of 775 and keeping a stop loss at 715.
Dr Reddy’s Laboratories: SELL| Target Rs. 2000 | Stop-loss Rs 2240 | Return 7%
The stock price has been trading below all important moving average supports. Yesterday, stock price broke down below bearish “Flag” pattern on the daily charts. The pharma sector has been the major underperformer for many months.
On 16th Feb, the stock completed retracement of 38.2% of the entire 23 percent fall seen from 2615(24 Jan 2017) to 2005(6th Feb 2018). This can act as bearish reversal point in the stock price.
Price has been forming lower tops and lower bottoms on the weekly charts. Oscillators like MACD, KST, and ADX have turned bearish on the medium to long-term chart. We recommend Selling DR Reddy for the downside target of 2000, keeping a stop loss at 2240.
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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