'Short-term traders should retain their longs until Nifty holds 11,630'

Nifty formed an 'Inside Bar' pattern on October 13 as the action remained confined within its prior days' range. The index has continued its higher top higher bottom sequence in the last 12 days now, though it has not slipped below its prior days' swing low yet but for the first time it has been unable to surpass its prior days' swing high.

The immediate headwinds for the week clearly stand around 12,065 while 11,630 remains a trailing support for the ongoing momentum. Also, despite the 12-day up move, the index has no major signs of divergence in strength on any of its trend strength indicators, hence, a breach above 12,065 could push the index immediately towards 12,146 in no time which would be a key level for assessment of its ongoing strength.

ADX strength indicator on its daily scale too has been on track while the index constituents are placed well for another round of rotation in leadership as Pharma, IT look strong while selective banks remain in a cool off mode. With no signs of reversal yet or lack of strength within the ongoing momentum, short term traders should retain their momentum longs until 11,630 holds intact while any corrective within the range of 12,050-11,700 could be a temporary pullback for a final push above 12,065. As the sector rotation & market breadth has been healthy, one could maintain a combination of long short positions for the rest of the series.

Here is the list of stocks for short term:

Buy Tech Mahindra

Multi-months resistance breached on its monthly scale as the stock closed above the Rs 860 mark first time since May 2019. The recent breakout from the continuation pattern (Bullish Pennant) indicates a price target upto Rs 1,005. With its daily RSi just entering its overbought zone but despite the previous rally there are no signs of divergence or lack of strength. Sustained flows within the sector there seems to be quite a headroom available for the ongoing upmove to stretch its legs further. Trading longs should be maintained until Rs 830 holds for an initial pattern target upto Rs 1,005.

Buy Tata Chemicals

Occurrence of a 'Bullish Engulfing' formation near its 20 DEMA support range. Derivative data indicates strong bounds been placed around Rs 300-320 & a decisive breach on either side would garner fresh momentum. Since its momentum indicators remain strong as its daily RSI has been holding above its 50 mark since last 4 sessions despite some negative price action in the past week. The proximity towards the lower end of the range makes the setup more healthy for fresh long additions with a stop below Rs 300 for an initial upmove towards Rs 320 which also coincides with its 61.8 percent retracement zone of its previous down move.

Negative crossover of short term averages reaffirm the ongoing weakness to continue further as the stock slipped below its previous weeks low. Rs 65 remains a strong resistance again as it failed to sustain above the same despite the overall momentum in the broader market. Derivative data indicates continuation of its Short Unwinding cycle as it saw fresh open interest additions of another 5 percent on October 12 when the price saw a cut of around 2.5 percent. Fresh shorts to maintain until Rs 64.30 hold while the weakness is expected to push the stock lower below Rs 55.

(Sacchitanand Uttekar is the DVP – Technical (Equity) at Tradebulls Securities.)