Nifty fell 163 points on the back of weak global cues to close at 11,768 on October 26, its lowest level since October 16.
The short-term trend of Nifty turned bearish as the index has closed below its 5 and 11-day EMA.
Moreover, during the last two-weeks, Nifty has reversed south from 12,018-12,025 levels three times, which indicates tough resistance at those levels.
Therefore, unless Nifty closes above 12,025, the short-term trend will remain bearish.
On the downside, immediate support is seen at 11,717 where a 20-day SMA is placed. Nifty has never closed below its 20-day SMA in the month of October.
In the options segment, we have seen Put writing at 11,700 levels. A recent swing low is placed at 11,660 levels.
Therefore, we believe that correction is likely to accelerate if Nifty closes below 11,660.
The 11-period RSI has reached below the support level of 54 levels while the 10-day MFI has reached 45 odd levels from the 100 levels in mid-October, suggesting the correction to continue for the short-term.
Bank Nifty, has outperformed Nifty in October so far, gaining 12 percent as against the 5 percent rise in Nifty.
Currently, 20 and 200-day SMA both are placed around 23,300 levels. Therefore, unless Bank Nifty falls below 23,300 levels, outperformance is likely to continue.
We believe that the short-term trend of Nifty has turned negative. Therefore, our advice is to remain cautious till Nifty closes above 12,025.
On the lower side, we expect the correction to accelerate if the Nifty closes below 11,660 levels. The next downside targets in this scenario are placed at 11,497 and 11,300.
Here are three buy recommendations for the next 3-4 weeks:
Deccan Cements | LTP: Rs 320 | Target price: Rs 355 | Stop loss: Rs 295 | Upside: 11%
The stock broke out from the downward sloping trendline on the daily charts on October 22 with a surge in volumes.
The short-term trend of the stock turned positive where the stock is trading above its all-important short-term moving averages.
+DI is placed above the -DI while the ADX line is placed above 25 levels, indicating momentum in the uptrend.
Volumes are higher during the up-days as compared to down-days during the last few days, indicating accumulation in the stock.
Tata Communications | LTP: Rs 964.95 | Target price: Rs 1,065 | Stop loss: Rs 905 | Upside: 10%
After witnessing correction for the last three days, the stock resumed its uptrend by closing above its 5-day SMA with higher volumes.
During the last few days, the stock price has taken support at a 20-day SMA.
The primary trend of the stock is positive where the stock is trading above its all-important short-term and long-term moving averages.
+DI is placed above the -DI while the ADX line is placed above 25 levels, indicating momentum in the uptrend.
Welspun Corp | LTP: Rs 115.50 | Target price: Rs 125 | Stop loss: Rs 109 | Upside: 8%
The stock broke out on the daily charts on October 22 with higher volumes. The short-term, as well as, medium-term trend of the stock is positive where the stock is trading above its all-important short-term and long-term moving averages.
Volumes are higher during the up-days as compared to down-days during the month of October, indicating accumulation in the stock.
(The author is a technical research analyst at HDFC Securities)
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