Nifty has been witnessing a strong up move since May 19, after the occurrence of the ‘Homing Pigeon’ candlestick formation at the base of its ongoing channel pattern.
After a strong rally of 13 sessions, the index witnessed some profit-booking around 10,300 level and it slipped back towards the immediate support around 10,000.
Options data so far indicates that 10,000 will remain key support for the week while upside remains capped within 10,300-10,500 zone.
The open interest-put-call ratio for the weekly contract now stands around 0.74 vis-à-vis 0.90 a day ago while implied volatility is still trending lower.
On its daily scale, there is no sign of any meaningful reversal formation on the price chart yet, while the index has managed to sustain above its 5-DEMA which is currently placed around 10,030.
RSI (14E 9) on the other hand has been at 64 and is yet to hit the overbought conditions while the average directional index (ADX 9) has been sustaining well above 25 and is currently quoting at 32.60 despite the pressure which is a good sign of strength.
Hence, looking at the indicators in conjunction with the open interest developments, the probability of a sustained uptrend remains high until a decisive breakdown below 9,930 is not witnessed.
A move above 10,240 in the coming session would reinstate momentum for a move towards 10,550 (200-DEMA). Hence, long should be maintained with a trailing stop strategy until 9,930 is held.
Here are three trading ideas for the next 3-4 weeks.
IndiGo Futures | Sell | Target price: Rs 970 | Stop loss: Rs 1,110
There is 'dark cloud cover' formation on the daily scale near its 200-DEMA along with a negative crossover on its daily RSI.
The stock has closed below its 5-DEMA, indicating weakness may persist. Short positions will be maintained for a move towards Rs 970 with a stop loss above Rs 1,110.
United Spirits Futures | Buy | Target price: Rs 645 | Stop loss: Rs 592
The stock has seen fresh breakout above its spinning top formation on the daily scale which coincides with its option barrier around Rs 600.
We expect the momentum to amplify above Rs 620 towards Rs 645 in the coming week, fresh longs can still be considered with a stop loss below Rs 592.
Dr Reddy's Laboratories Futures | Buy | Target price: 4,220 | Stop loss: Rs 4,045
Along with the strong performance of the pharma sector, the stock is also maintaining its bullish sequence.
A fresh breakout above its recent consolidation zone is well supported with volumes and fresh open interest additions on a daily scale.
Momentum longs can be maintained with a stop below Rs 4,045 for a move towards Rs 4,220.
(The author is DVP – Equity Technical, Tradebulls Securities)Disclaimer: 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.