Podcast: Pullback likely to extend up to 10,300 in Nifty; 3 stocks which could give up to 10% return

Vinay Rajani

The Nifty50 has witnessed a fall of almost 11 percent from the all-time high of 11,171 registered in January 2018 to the recent bottom of 9,951.

The Nifty Midcap and Smallcap indices plunged 16 percent and 21 percent, respectively. Many stocks have seen a fall of than 40 percent from their 3-month highs.

Due to this panic selling, stocks have turned extremely oversold on the daily as well as weekly charts. As a result, we saw markets started rebounding from Monday.

We have been observing positive divergence on the Nifty daily charts, where Nifty formed a lower bottom while the relative strength indicator or the RSI oscillator formed a higher bottom.

Positive divergence indicates that dominance of the bears is losing grip over the bulls while making new lows, which ultimately could turn the trend in favor of bulls, once Nifty surpasses crucial resistance levels.

As far as resistance is concerned, Trendline, adjoining previous two tops on the daily charts projects the resistance at 10,300 odd levels. A breakout above this level could be considered as a trend reversal sign, till then the positional trend would remain bearish.

A 200-DMA for Nifty is placed at 10,175, while previous top on the daily chart is placed at around 10,227 levels. The Nifty is still placed below its 20, 50, 100 and 200-DMA.

Lower tops and lower bottoms formations are still intact, indicating a positional downtrend. For the month ended February 2018, Nifty formed bearish “Engulfing” pattern on the monthly chart, which is a bearish sign for the medium-term.

The recent bottom of 9,951 is likely to act as a short-term support. Violation of this support could drag Nifty towards long-term upward sloping trend line, adjoining bottoms of Feb 2016(6,825) and Dec 2016(7,893), which projects the support around 9,850.

To conclude, we expect Nifty to extend the recent pullback rally up to 10,300. Midcaps could give nice short-term returns in this recovery. The level of 9950 seems to be a short-term bottom for Nifty which should be kept as a stop loss while trading longs.

Here is a list of top three stocks which could give up to 10% return in the short term:

Bajaj Electricals Ltd: BUY| Target Rs. 618 | Stop-loss Rs 530 | Return 10%

The stock has been an outperformer in the recent bearish trend of the market. It is one of the stocks which have been hovering around its all-time highs when there was fierce selling in midcaps.

The stock has recently witnessed a healthy correction of 19 percent from its all-time high of 634. However, the overall trend for the stock is bullish with higher tops and higher bottoms on the daily and weekly charts.

The short-term moving averages are trading above long-term moving averages. We recommend buying Bajaj Electric for the upside target of 618, keeping a stop loss at 530.

Manappuram Finance Ltd: BUY| Target Rs. 116 | Stop-loss Rs 105| Return 7%

The stock has been hovering around its 200-DMA support, which is currently placed around Rs104 levels. The stock has recently surpassed the crucial resistance level of 50-days EMA, placed around Rs108 levels.

For the last two days, volumes remained high along with the price rise. Oscillators like RSI and MACD have been showing strength on the daily as well as weekly charts.

The prospects of the stock look good if somebody is planning to go long term. The short-term moving averages have been trading above long-term moving averages. We recommend buying Manappuram Finance for the upside target of Rs116 and keeping a stop loss below Rs105.

TV18 Broadcast Ltd: BUY| Target Rs. 72 | Stop-loss Rs 65 | Return 7%

The stock has been resilient and is hovering around its 52-week high of 69.45. On Monday, the stock resumed its uptrend after small correction, witnessed during last week.

The price rose more than 6 percent, with a jump in volumes. It found support at its 20-days EMA and then reversed. Media sector has been performing well for the last couple of weeks and the same is likely to continue.

The primary trend of the stock has been bullish with higher tops and higher bottoms formations on the weekly charts. We recommend buying TV18 for the upside target of 72, and a stop loss placed below Rs65.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.