Podcast | Stock Picks of the Day: Top 3 positional buy ideas that could return 10-21% in next 6 months

Dharmesh Shah

Last week, the Nifty logged its fourth consecutive weekly gain and tested the upper band of the recent consolidation placed around 10,900 levels. As expected, the index witnessed profit booking during the first half of the current week after a 340 points upmove from the recent low of 10,550.

The current profit booking has helped the index work off its overbought condition in stochastic oscillators, which is currently placed at 21.

Lack of a faster retracement on either side makes us believe that the Nifty would extend its ongoing consolidation in the range of 10,930-10,650 over the next couple of weeks. This consolidation would help form a higher base, which would set the stage for testing the upper band around 10,930. Here’s why:

b) May’s high of 10,929

The secondary phase of correction is an integral part of the primary bull trend. Investors should avoid creating aggressive short position at the current level (as the stochastic oscillator is approaching oversold territory) and use any dip towards 10,700-10,650 to accumulate quality stocks in a staggered manner. Support is placed near the key value area of 10,650, which is a confluence of:

b) 61.8 percent retracement (10,551- 10,893) placed around 10,680 levels

Structurally, the Nifty Midcap and Nifty Smallcap indices have approached their key value area as both have filled the positive gap (recorded on June 7) and retraced 61.8 percent of their recent upmove along with an oversold placement on the stochastic indicator.

These indices are approaching their key value area as seen by the placement of a Hammer candle (witnessed in early June), signifying limited downside.

Investors should focus on accumulating quality beaten down stocks in a staggered manner.

Here is a list of three stocks that could return 10-21 percent in the next 6 months:

Marico: Buy| CMP: Rs 335| Target: Rs 370| Stop Loss: Rs 315| Return 11 percent| Time Frame 1 months

The share price of Marico has witnessed a sharp rebound from the May 2018 low of Rs 305 and is seen forming a higher peak and higher trough on the weekly chart.

The recent price activity signals a major trend reversal offering a fresh entry opportunity for medium term investors.

Over the past ten months, the stock has been majorly consolidating in a broader range of Rs 335–300. This overall consolidation has taken the shape of a contracting triangle pattern, indicating tapering range bound activity.

The stock has recently recorded breakout from aforementioned contracting triangle pattern and is seen sustaining above the same signalling conclusion of the secondary phase of consolidation.

The stock retraced its 2016-17 up move by 50 percent (292) and formed a base formation near lows of March and May 2017 around Rs 300, indicating accumulation by stronger hands at the major retracement support.

The immediate short-term support is placed around Rs 320 levels being the confluence of the trendline support joining recent lows and 50 percent retracement of the last major up move (285-352)

The momentum indicator has seen a range shift as weekly RSI recorded breakout from eight months high of 63, indicating renewed buying interest that augurs well for next leg of up move.

Based on the aforementioned technical evidence, we believe the stock has formed a higher base as stock to resolve out of contracting triangle pattern, signifying continuance of uptrend.

Therefore, it offers an opportunity to ride the same with favorable risk-reward setup. The stock is likely to head towards 370 being the measuring implication of the consolidation breakout (335-300=35 points) added to the breakout level of 335, projects upside towards 370 (335+ 35=370).

Maharashtra Seamless: Buy| CMP: Rs 451| Target: Rs 548| Stop Loss: Rs 402| Return 21 percent| Time Frame 6 month

The stock witnessed a structural turnaround in the August 2017 as it registered a resolute breakout from multiyear (7 years) resistance zone (420). Thereafter, the stock has consistently moved northwards and recorded a 52 weeks high of 552.

We believe the sideways consolidation over the past three months has laid the foundation for the next leg of up move within a structural uptrend

The entire corrective decline since January 2018 high (552) appears to be forming a falling wedge pattern. The occurrence of falling wedge pattern near crucial support area signifies bullish trend reversal.

Thereby offering a fresh entry opportunity as a breakout from falling wedge would indicate the end of the secondary corrective phase and resumption of the primary uptrend.

We believe the stock has been forming a strong support base formation around 415 levels, as it is a confluence of:

b) as per change of polarity concept, the earlier resistance of 420 has now acted as key support, as the stock is forming potential double bottom formation near 420 levels

Based on the aforementioned technical parameter, we expect the stock to head towards 550 as it is the implicated target of recent consolidation (485-415=70) added to breakout level (485+70=555) corroborating 52 weeks high of 552

Greaves Cotton: Buy| CMP: Rs 135| Target: Rs 149| Stop Loss: Rs 126| Return 10 percent| Time Frame 1 months

The stock after the sharp decline in the second half of C.Y 2017 has formed a base at the Rs 115 levels during March 2018 being the previous multiple lows. The stock since then has steadily moved higher forming higher troughs in the daily chart.

The stock is currently placed at the cusp of a trendline breakout joining the recent highs and the price up move on Wednesday’s session was supported by the strong volume of almost three times the 200 days average volume of 7 lakhs share per session indicating larger participation at the breakout level.

The short-term support is placed around | 126 levels as it is the confluence of the trendline support joining lows of March 2018 (113) and June 2018 (120) and the 61.8 percent retracement of the previous up move (120- 139).

Among the oscillators the daily 14 periods RSI has recently generated a bullish crossover above its nine period’s average thus supports the positive bias in the stock.

We expect the stock to continue its positive bias and gradually head towards 150 levels as it is the 123.6 percent extension of the previous up move (120-139) as projected from the recent trough of | 128 signals upside towards 150 levels in short-term