The Bank Nifty has been the weak link for the last two trading sessions. However, this could be part of sector rotation in the overall bullish trend.
Vinay Rajani
For the last six sessions, the Nifty has been trading in a narrow range of 10,676-10,900.
The index is giving respect to the important resistance level, derived from 200-days simple moving average, which is at 10,885.
In the last six sessions, the index has maintained its level above its 5-day EMA, which is at 10,760.
A higher top and higher bottom pattern is intact on the daily chart. Daily RSI oscillator has also been registering higher highs, which means there is no sign of negative divergence.
History suggests that major tops are always accompanied by negative divergence, which is still not the case with the Nifty.
Though RSI has reached above 70, it will not be correct to consider it as an overbought scenario. Unless the benchmark index registers new high with RSI making a lower top, we should not consider the chances of a bearish trend reversal.
The momentum indicator, ADX has crossed–DI line on the upside and now has reached above the equilibrium zone of 25.
ADX is marching towards +DI on the daily chart. This entire setup indicates that markets are ready to rally after a small consolidation.
At 10,550, Nifty has already taken out the 61.8 percent retracement level of the entire downswing seen from 12,430 (January 2020 top) to 7,511 (March 2020 bottom).
Now, the next logical resistance is projected at 11,269 which happens to be the 76.4 percent retracement of the same period.
The Bank Nifty has been the weak link for the last two trading sessions. However, this could be part of sector rotation in the overall bullish trend.
The Bank Nifty is down but not out on the charts. The Index is expected to find support around its rising 20-days EMA, placed at 21,758.
The ultimate target for the Bank Nifty is seen around 24,000, which is likely to be attained in a couple of weeks.
Highest OI in Calls stands at 11,000 strike price while the highest OI in Put stands at 10,700 strike price for July 16, 2020 expiry.
From the derivative perspective, we can consider the level of 10,700 as a strong support in the Nifty.
However, technically the gap area between 10,630 and 10,695 indicates a strong base.
To conclude, it is advisable to hold long positions in the Nifty with the stop loss of 10,630 on a closing basis.
Upside target for the Nifty is seen at 11,270. The Bank Nifty, too, can be bought at lower levels for the target of 24,000, keeping a stop loss at 21,300.
Here are three buy calls for the next three-four weeks:
The stock is trading above all important moving averages, indicating a bullish trend on all timeframes.
Speciality chemical stocks have been performing very well for the last three months. For the last five trading sessions, the stock has been consolidating in the 'flag continuation pattern' on the daily chart.
On July 13, the stock rose 1.8 percent with a rise in volumes, which has taken the price very near to the breakout level.
BASF India | Buy | LTP: Rs 1,340.95 | Target price: Rs 1,480 | Stop loss: Rs 1,260 | Upside: 10%
The primary trend of the stock has been bullish, with higher tops and higher bottoms on the daily chart.
The stock has registered fresh 52-week high with a significant jump in volumes. A bullish Cup and Handle pattern breakout was registered last week.
Triple top resistance placed at Rs 1,225 is taken out decisively. Indicators and oscillators have turned bullish on the weekly chart.
ICICI Securities | Buy | LTP: 510 | Target price: Rs 560 | Stop loss: Rs 480 | Upside: 10%
ICICI Securities has been one of the best performing midcap stocks in the last four months. It has reached its issue price and has been consolidating around that for the last few days.
The issue price also coincides with the resistance, which derives from the major top formed in February 2020.
This resistance zone is at Rs 518-525. However, the way the stock is placed on the chart, it seems that this resistance zone is going to be taken out soon.
Indicators, oscillators and volume setup indicate that the stock is going to continue its uptrend and is likely to register a new all-time high above Rs 525 soon.
(The author is Senior Technical & Derivative Analyst at HDFC securities.)
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