Charts suggest slightly negative uptrend for Nifty; two stock with potential upside in near-term

The short term trend of Nifty is slightly negative. But the overall uptrend status of the market remains up and still there is no formation of any reversal pattern at the highs.

By Nagaraj Shetti

After showing upside breakout of sideways range at 11240 levels on Tuesday, Nifty slipped into weakness on Wednesday and closed the day lower by 97 points. A reasonable negative candle was formed with a new swing high formation at 11341.40. Technically, this pattern signal negation of upside breakout attempt of previous session. 

Though, Nifty failed to continue with follow through upmove on Tuesday, the underlying uptrend status remains intact. As long as the lower support of 11150-11100 levels holds, there is a possibility of further upside in the market for the short term. At the same time, upper levels of 11350-11400 could act as a key overhead resistance in the near term.

Nifty on the daily chart has been showing strength to sustain the highs and has witnessed minimum downward correction in the last one month. One session declines in the last 3-4 occasions have reversed its trend on the upside in the subsequent sessions. Hence, there is a possibility of upside bounce from the lows in the coming sessions. 

Daily 14 period RSI is placed above 60 levels and is gradually turning up signaling strength in the upside momentum. As per its formulation, one may expect upmove to resume further from here or from slightly lows in the next few sessions.

Conclusion: The short term trend of Nifty is slightly negative. But the overall uptrend status of the market remains up and still there is no formation of any reversal pattern at the highs, as per daily chart. There is a possibility of upside bounce (from here or from the lows) and retest of the overhead resistance of 11350 in the next few sessions. On the downside the area of 11100-11060 is likely to offer strong support for the market ahead.

Stock Picks: 

Coal India Ltd: BUY- (CMP Rs 131.20) 

The stock price as per weekly timeframe chart was moving in a consolidation pattern in the last three weeks. The upside recovery of this week could indicate that the stock price is making an attempt of forming important bottom reversal around Rs 125-120 levels.

We observe a formation positive candlestick pattern at the lows, which also coincides with the multiple bottoms at higher highs. This is positive indication and signal upside bounce in the stock price ahead.

Buying can be initiated in Coal India Ltd at CMP (131.20), add more on dips down to Rs 126, wait for the upside target of Rs 145 in the next 3-4 weeks. Place a stoploss of Rs 122.

Sonata Software Ltd: BUY – (CMP Rs 258.90) 

After showing a gradual upside movement in the last one month, the stock price shifted into a firm upside bounce in this week. 

This upmove has resulted into an upside breakout of the rising trend line resistance at Rs 255 on Wednesday and closed higher. This upside breakout was accompanied with the rise in the volume. The daily and weekly 14 period RSI signal continuation of upside momentum in the near term.  

Buying can be initiated in Sonata Software Ltd at CMP (258.90), add more on dips down to Rs 248, wait for the upside target of Rs 283 in the next 3-4 weeks. Place a stoploss of Rs 242.

(Nagarag 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. Please consult your investment advisor before investing.)