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RSI above 20-DMA supportive for bullish momentum, bet on these 3 Nifty stocks for 15-35%

On the weekly time frame, the Relative Strength Index is trading near 50 levels, showing strength.

October 07, 2019 / 10:41 AM IST
 
 
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Shabbir Kayyumi

The Nifty closed negative in the last few trading sessions but is still trading above the key 20 and 50-day moving averages, indicating that the current fall could be corrective in nature. Also, recent moving average bullish crossover of 20-DMA and 50-DMA is supportive for positive momentum in mid-term.

Interestingly, RSI, one of the most keenly watched technical indicators, is also suggesting the current fall to be corrective.

RSI stands for Relative Strength Index. It is a momentous oscillator used to identify trend reversal. The default look-back period for RSI is 14. RSI calculates strength of stocks’ trends and helps to predict their reversals. RSI value oscillates between 0 to 100, RSI cutting the 50-mark centreline from below is called as ‘bullish break out’ of RSI and vice versa.

After the Nifty rally that followed the corporate tax cut, RSI has given a breakout and has made a high of 69. Since then, it is trading lower or retracing towards centreline placed at 50 levels, this behaviour is called as 'RSI PBB' setup. RSI PBB, or pull-back buy setup, is formed once RSI rallies above 50 levels and then starts taking support from 50 levels. For this buy setup, he target is previous swing high of RSI, which was 69.

Also, RSI is trading above its 20-DMA which is supportive for a bullish momentum. RSI on weekly timeframe is also trading near 50 levels showing strength.

These technical rationales suggest buying should come from the line of parity placed around 11,135 or from the strong psychological levels of 11,000. This pull-back buy view will get negated if the Nifty starts trading below 10,929.

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A list of stocks that could give 15-35 percent return in the near-term:

Munjal Auto Industries | Buy Around: Rs 37 | Target: Rs 50 | Stop Loss: Rs 31 | Upside: 35 percent

This stock has a cup and handle pattern in the daily chart which is on the verge of breakout. The crucial resistance of the 50-SMA has been recently taken off, which indicated short-term momentum to the uptrend. The momentum indicator MACD has crossed the signal line, indicating a start of a trend.

It was until recently undergoing a larger time-frame consolidation, which we think was pause in the larger trend that is now resuming. We recommend a buy in Munjal Auto around Rs 37, with a stop loss of Rs 31 and target Rs 50.

IDFC First Bank | Buy Around: Rs 37 | Target: Rs 48 | Stop Loss: Rs 32 | Upside: 29 percent

The stock has been forming a double bottom pattern on the daily chart. A close above Rs 42 should confirm the bias on the upside and trigger a double bottom pattern play. The crucial resistance of the 50-SMA is important to breach for short-term momentum to the uptrend. RSI divergence, while forming a double bottom, is also support for the up move. We recommend buying the stock at around Rs 37, with a stop loss of Rs 32 and target of Rs 48.

Amara Raja Batteries | Buy Around: Rs 670 | Target: Rs 770 | Stop Loss: Rs 620 | Upside: 15 percent

The stock has witnessed a decent correction recently from the peak of Rs 744 and took a halt near the base of previous breakout of cup and handle pattern on the daily chart. RSI has been hovering above 50 and MACD has indicated a reversal to maintain a positive bias, which is showing potential to rise further .

Moreover, it took support from 200-DMA, which also suggest bullish move on upside. With the chart looking attractive and decent volume participation witnessed, we recommend a buy around Rs 670, for an upside target of Rs 770, and keep a stop loss of Rs 620.

(The author is Head of Technical Research at Narnolia Financial Advisors Ltd.)

Disclosure: Narnolia Financial Advisors/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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