Nifty's Island Reversal pattern indicates bulls may take charge again

Rudra Shares and Stock Brokers

The bulls caught the falling knife and a sharp pullback was witnessed on February 19 after four days of consecutive fall. Long shadow candle on February 18’s session gave an early indication that the bears were losing control, which eventually resulted in the reiteration of the pullback. 

The 20-day moving average has been regained along with important medium-term moving averages, suggesting that he bears might take a backseat and the Nifty is likely to continue with the up move for the next few days.

Prices have taken support at 50 percent retracement level of the latest swing move and formed a high shadow bullish candle. The bullish move on February 19 resulted in the 'Island Reversal' pattern, which indicates that the bears have been left alone for the time and dips from current levels are likely to be bought into.

Setup indicates that the bulls could take the rally towards 12,239 but the pace is likely to be de-accelerated. RSI is trading in a sideways zone, where short-term and medium-term moving averages are trading flat. 

The convergence of averages suggests that demand and supply are likely to adjust at these levels and a rangebound movement could continue from here.

The expected trading range for the next few days is likely to be (Rs 12,239-12,029) with slightly positive bias as intraday charts are favouring bulls. Prices are tagging the upper band Bollinger band and momentum indicators are trading in the bullish zone.

To put the things into perspective, the overall scenario indicates that gradually the bulls are likely to take rally forward and any dip should be taken as buying opportunity until trading above 12,029.

Here are three stocks that could offer 5-6 percent return in the short term:

Voltas: Buy | Target: Rs 780 | Stop loss: Rs 710 | Return: 6 percent

On the weekly chart, the stock is trading with a higher top and higher bottom formation. The price pattern suggests that the bulls would continue to have an upper hand in the counter.

On a daily time-frame, bullish head & shoulder breakout provides a lucrative opportunity for the bulls to ride the trend further. Momentum indicators are trading in a bullish zone and traders can initiate long positions at CMP and on any dip till Rs 717.

M&M: Buy | Target: Rs 555 | Stop loss: Rs 505 | Return: 5 percent

The stock is offering a counter-trend buying opportunity. After a sharp fall, the bullish candlestick pattern has been formed on the daily chart at the support level. The short period 7 bar bullish divergence indicated that the stock is a probable candidate for short covering in the coming days.

The recent sharp fall has placed the prices far away from its 20-day moving average, which usually acts as a base in the short term. To maintain the balance of demand-supply, the stock might bounce back from current levels. The initial signal of strength is visible in the intraday chart, where volatility breakout has already taken place. Traders can initiate a long position in the counter for short-term gains.

Poly Medicure: Buy | Target: Rs 318 | Stop loss: Rs 287 | Return: 6 percent

After a breakout, the stock has retraced and is trading at an important support level. The 20-day moving average is acting as a support and the bullish candlestick pattern indicates that the resumption of an uptrend is on the cards.

RSI is bouncing back from an important support level, suggesting that a reversal after retracement might get into action and the bulls can take charge once again. Long positions can be initiated at current levels and on any dip till 294 with a short-term perspective.