Looking for momentum picks? ABB, Godrej Properties can give 10-15% return in short term

Dharmesh Shah

The Nifty on the weekly scale resulted in a bull candle with a small real body and a long lower shadow supported by higher high formation, highlighting strong support at the lower band of upward sloping channel placed since October.

The index tested our immediate target of 10,760 in Monday’s session last week. However, it witnessed a profit booking in the last two sessions highlighting a breather near the negative gap (10,755–10,858) on October 4 coinciding with 200-days SMA.

During the current leg of up move off October low (10,005), the Nifty has not corrected for more than 2-3 sessions in a row.

In the current scenario, as the Nifty has declined in the last two sessions. We expect the index to maintain the rhythm and the current corrective consolidation to mature in the coming 1-2 sessions.

Going ahead, we expect the Nifty to form a higher base during the current consolidation in the broad range of 10,760 to 10,450 amid the stock specific action.

We believe that the ongoing second phase of consolidation would make the market healthy and form the base for the next leg of up move towards 11,100 in the coming weeks due to the confluence of the following technical observation:

a) 61.8 percent retracement of entire corrective phase since August 2018 (11,760–10,005), placed at 11,090

b) Price parity of last pullback (10,005–10,607) projected from a recent low of 10,440, placed at 11,043.

Since December 2017, the index has been maintaining the rhythm of each directional move lasting for eight weeks.

In the current scenario, as we are currently in the fourth week of the upward directional move so we believe the index is likely to continue with its current positive trend.

Price movements also support the positive trend in the index as rallies are getting bigger (in magnitude) along with contracting declines.

The recent up move of 770 points is larger in magnitude compared to mid-October pullback of 571 points. Also, the last decline (705 points) is less than the early October decline (896 points).

The aforementioned technical evidence makes us confident of revising the support base upward at 10440 as it is:

a) Lower band of rising channel is placed around 10,520

b) 38.2 percent retracement of last up move (10,005–10,775), at 10,480

c) Last week’s low is placed at 10,441.

The Nifty Midcap index has been consolidating for the last 13 sessions, we believe that the ongoing consolidation would make the broader market healthy and will set the stage for the next leg of up move to unfold.

Hence, we believe the current consolidation should be capitalised to accumulate quality midcap stocks in a staggered manner.

Here is a list of top two stocks which could give 10-15 percent return in the next six months:

ABB: Buy| LTP: Rs 1,345| Target: Rs 1,550| Stop loss: Rs 1,210| Return: 15 percent| Timeframe: 6 months

The share price of ABB has been oscillating in an upward sloping channel over the past two years (drawn adjoining lows of January - December 2016 of 955 -1018, respectively).

Recently, prices retraced 80 percent of the last leg of up move (Rs 1,129 – 1,517), placed at Rs 1,206 coinciding with the lower band of rising channel. As a result, the stock formed a higher low, signifying the conclusion of ongoing corrective phase.

Going ahead we expect the stock would hold the key value area of Rs 1,200-1,220 and resolve higher, as:

a) Long-term 200 weeks EMA is placed at Rs1,232

b) The lower band of the upward sloping channel is placed around Rs 1,160

Among momentum oscillators, the weekly stochastic oscillator has been inching upward after recently recording bullish crossover, indicating an acceleration of positive momentum in the short term.

In a nutshell, we believe the stock has formed a strong base around Rs 1,200 zone that augurs well for the stock to resolve higher and head towards Rs 1,550 in the medium term.

Godrej Properties: Buy| LTP: Rs 662| Target: Rs 725| Stop loss: Rs 598| Return: 10 percent| Timeframe: 1 month

The share price has been forming a higher peak and trough after finding support from 200-week EMA, suggesting the emergence of buying demand at key support area (Rs 500).

During the week, prices resolved out of downward sloping trend line, signifying termination of corrective phase, in turn, suggesting resumption of the primary uptrend. Thereby providing fresh entry opportunity over the medium term.

The entire price action since October low (Rs 460) has been captured in a well-defined upward sloping channel drawn adjoining lows of RS 460-504 and projected from October high (Rs 610), indicating the continuance of positive momentum.

Over the past three weeks, prices have formed a higher base formation at Rs 600, highlighting buying demand at the elevated support base.

Among oscillators, the weekly MACD has recently generated a bullish crossover above its nine-period average, suggesting an acceleration of positive momentum.

Going ahead, we expect the stock to resolve higher and head towards Rs 744 in the coming month as it is the 61.8 percent retracement of the entire secondary corrective phase (Rs 920 - 460).

The author is Head Technical at ICICI Direct.com Research.