Bulls may be unable to sustain higher levels; two stocks that could defy short-term market weakness

Wednesday’s higher levels weakness could signal a possibility of more declines in the short term.

• By Nagarajs Shetti

After showing sharp weakness on Tuesday, Nifty witnessed high volatility on Wednesday and closed the day on nominal gains of 10 points. A small negative candle was formed on Wednesday with a long upper shadow. This pattern signals the instability of bulls to sustain the higher levels.

Nifty is currently placed at the edge of moving below the trend line support at 10600 and Wednesday’s selling pressure from the highs could signal that the said support could eventually be broken on the downside.

The larger degree of rising wedge is intact and Nifty is placed near the upper end of this pattern. Nifty showing instability to sustain the highs could mean that the said rising wedge pattern is likely to be broken on the downside. At the higher levels, intermediate resistance is intact around 10800-10900 levels (as per weekly/monthly time frame charts) and Nifty decisively surpassing above that area could be doubtful in the near term. Daily 14 period RSI also shows negative indications.

Conclusion:

The short term trend of Nifty is weak. Wednesday’s higher levels weakness could signal a possibility of more declines in the short term. Any intraday up moves could run into resistance. The selling momentum is expected to be picked up on a slide below 10550. The downside targets for Nifty to be watched around 10350-10300 for the next one week. Immediate resistance is placed around 10750-10800 for the next few sessions.

Stock Picks: 

AUROBINDO PHARMA LTD: BUY- (CMP Rs 838) 

The weekly timeframe chart of this Pharma counter (Auro. Pharma) indicates an upside breakout of the sideways range movement at Rs 830. After witnessing a sharp up move during April-May 2020, the stock price has shifted into a broader range movement for the next few months. Recently, placed to show a decisive upside breakout.

A sustainable move above Rs 830 could lead this stock towards new high of around Rs 895 and above. Such move could open up next leg of upside into a new highs.

The volume and RSI are signaling continuation of upside momentum in the stock price.

Buying can be initiated in Aurobindo Pharma Ltd at CMP (838), add more on dips down to Rs 800, wait for the upside target of Rs 925 in the next 3-5 weeks. Place a stoploss of Rs 785.

Tech Mahindra Ltd: Buy – (CMP Rs 616) 

After a sharp decline in the month of March 20, this IT stock (Tech Mahindra) shifted into a larger accumulation pattern over the last few months. The stock price is making an attempt of upside breakout around Rs 600-610 levels in the recent period.

The intermediate uptrend in this stock price remains intact and we observe a formation of larger degree higher bottoms as per weekly/monthly charts. Volume started to pick up during up move and daily/weekly RSI shows a positive trend.

Buying can be initiated in Tech Mahindra at CMP (616), add more on dips down to Rs 590, wait for the upside target of Rs 675 in the next 3-5 weeks. Place a stoploss of Rs 572.

(Nagaraj Shetti is a technical research analyst at HDFC Securities. The views expressed are the author’s own. Financial Express Online does not bear any responsibility for their investment advice.)