One should remain cautious in the zone of 10,580-10,740 as the fall from this zone can be sharp and may not give the exit opportunity later.
Highest option interest in the current series is placed at 10,700 call and 10,500 put options. Looking at the derivative data, we are expecting the index to remain in the range of 10,400-10,650 in expiry week, Jay Purohit -Technical & Derivatives Analyst, Centrum Broking Limited said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q) The Nifty50 rose nearly 1 percent for the week ended 20th April 2018 despite wild movements in either side. How do you see markets panning out in the coming week?
A) After seeing positive momentum in the last three weeks, the Nifty50 had a negative opening on Monday. However, Bulls were active from initial trades and took the gap-down opening as a buying opportunity and pulled the index above 10,500 mark on a closing basis for the week.
This was followed by yet another positive move on Tuesday. But, the winning streak of nine consecutive sessions has beached on Wednesday as the Nifty corrected from its strong hurdle of 10,580–10,640.
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In the last two sessions, the Nifty was moving in a trading territory of Wednesday’s session and thus formed an Inside Bar kind of formation in the last three days.
Though Nifty concluded the week with a gain of 0.80 percent over its penultimate week; the Bulls are losing their grip on the market.
Recently, the market breadth also remained in the favour of bears as losing stocks were more than gaining counters in 7 out of 9 sessions, which is a sign of concern for the market.
At the current juncture, multiple hurdles like previous swing highs, 61.80 percent retracement level of the entire fall and ‘gap’ area on the weekly chart, is placed in the zone of 10,580-10,740.
Also, the relative strength index or the ‘RSI’ oscillator on the weekly chart is approaching its resistance zone of 58-62.
On the flipside, 10,495 would act as an immediate support for the index; followed by major support at 10,390 level and below that index may correct up to 10,200 mark.
Considering evidences, we are expecting the corrective move to start soon. It is not necessary that we may start correcting right from this point.
But, one should remain cautious in the zone of 10,580-10,740 as the fall from this zone can be sharp and may not give the exit opportunity later.
Thus, we advise traders to stay light on positions and hedge the long portfolios with long-dated Nifty put options.
Q) There are plenty of stocks which are trading above their long-term average (200-DMA). Are these stocks a value buy at current levels? What other filters which one should add before initiating a trade?
A) Many market participants use long-term averages like 200-DMA or 200-EMA as a trend deciding level. These moving averages can be used as a support and resistance points.
But, we cannot trade solely on that. Thus, all the stocks above long-term moving averages are not the value buys. One should use other technical tools like candlestick patterns, chart patterns, and momentum oscillators to filter out the stocks for trading.
Q) What is your call on smallcap and midcap stocks? Should investors stay away or just book profits on rallies?
A) Since we already seen a decent rally in the last four weeks and most of the indices and stocks are now approaching its major resistance levels.
In case of a correction in benchmark indices, the smallcap and midcap counters may underperform the broader market. Thus, it's advisable to book profits on rallies.
Q) What should be the ideal strategy of investors for the expiry week?
A) In the week gone by, we witnessed a decent amount of writing in 10,600 and 10,700 call options; along with writing in 10,300-10,500 put options.
Highest option interest in the current series is placed at 10,700 call and 10,500 put options. Looking at the derivative data, we are expecting the index to remain in the range of 10,400-10,650 in expiry week.
Thus, traders are advised not to take an aggressive position in either direction.
Q) Top 3-5 positional call which could give handsome returns to investors in next 1 month?
A) From the last couple of weeks, we are witnessing some good movement in many largecap and midcap counters. The stock-specific move may continue in consolidation phase too. Below are few stocks where we are seeing good trading opportunities.
InterGlobe Aviation Ltd: BUY| Stop Loss Rs1470| Target Rs1570| Return 4%
The stock has given a breakout from the ‘Bullish Flag’ pattern on the daily chart with decent volumes. Thus, we are expecting a continuation in the ongoing momentum towards Rs 1570 levels. Thus, longs can be taken with a stop-loss of Rs 1470.
Eicher Motors Ltd: BUY| Stop Loss Rs30500| Target Rs32500 – 33000| Return 4%
After a decent rally, the stock has started moving in a sideways direction. Currently, the stock is on the verge of giving a breakout from the consolidation phase of the last five sessions.
Considering positive placement of moving averages and momentum oscillator, we are anticipating resumption in the uptrend. Hence, the stock can be bought for a target of Rs 32,500-33,000 with a stop-loss of Rs 30,500.
Tata Motors Ltd: BUY| Stop Loss Rs320| Target Rs360 – 365| Return 8%
The stock has formed a Bullish Harmonic pattern called ‘Bullish Bat’ on the intraday chart. The Potential Reversal Zone (PRZ) of the mentioned pattern is placed at Rs 328-331.
Hence, we are expecting a reversal in the counter. Thus, traders can buy the stock in the mentioned PRZ with a stop-loss of Rs 320 and a target of Rs 360-365.
Adani Ports Ltd: SELL| Stop Loss Rs402| Target Rs340| Return 10%
Adani Ports Ltd had a decent rally in the eighteen months ended in January 2018. That up move was similar to the bull run witnessed in the past (from Feb 2014 to Aug 2015). So, both time and price symmetry can be seen on the chart.
After the up move, the style of correction are also similar in both the instances. Currently, the stock is hovering around the ‘Breakdown’ level; from where it corrected sharply in the past too.
Also, the ’50 EMA’ is on the verge of giving negative crossover with ‘200 EMA’ on the daily chart, indicating weakness in the counter. Considering the above price symmetry, the stock may correct sharply towards Rs 340-330 levels in coming three months.
The above view will negate on a move above Rs 402 level. Thus, traders are advised to take short bets in the counter in Futures and Options segment based on the mentioned trade set-up of cash levels.
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