Podcast | Stock picks of the day: Cut shorts and go long in Nifty; 11,142 critical for bulls

Vinay Rajani

For the last five consecutive weeks, the Nifty has been consolidating in the weekly closing range of 10,829 to 11,109. The Nifty has been taking support around its 100-week EMA and has managed to sustain above that on a weekly basis.

At present, 100-week EMA is placed at 10,787 and unless that is breached, the view is towards the upside in the Nifty. On the upside, 11,181 the higher band of the consolidation would remain strong resistance for the index.

As per the Dow Theory, bullish trend reversal gets confirmed when underlying makes higher bottom followed by a higher top. Currently, the higher top is yet to be made in Nifty, which is placed at 11,142.

A level above 11,142 would also confirm bullish inverse head and shoulder breakout on the Nifty daily charts. The approximate target, in that case, would come at 11,600 levels.

On the weekly charts ending September 6, the Nifty formed a “Dragon Fly Doji” kind of pattern, which indicated chances of bullish trend reversal.

The Nifty has surpassed the resistance of its 20-DMA but is still trading below its 50, 100 and 200-DMA, which indicates a positional downtrend.

However, Oscillators have been showing positive divergence from the oversold zone on the short term charts, which creates good chances of generating strong trading gain even from these levels.

The Nifty Midcap Index has recently given a breakout from the bullish inverse head and shoulder pattern on the daily charts, while Nifty Smallcap index is on the verge of developing the same.

This indicates that the breadth of the market is improving and likely to get better going forward. The target of the pattern comes 5 percent higher from current levels of Nifty Midcap Index.

The Nifty witnessed negative returns for the last three consecutive derivative series. Combined return of June, July and August derivative series is negative 8.5 percent.

This has happened for the first time after the year 2015 when it fell for three consecutive series, followed by smart recovery in the next series. History suggests that Nifty gives a positive return in the series preceded by three back to back negative series.

Putting this into the perspective, we believe that the current September series should end with positive returns.  Considering the Technical Evidences discussed above, we believe that the technical setup of Nifty has shifted to bullish trend from bearish.

Shorts are advised to be cut at present and fresh longs can be initiated with the stop loss of 10,787 on closing basis. Resistances for Nifty are seen at 11,142, 11,181 and 11,600-11,650 range.The Midcap and Smallcap stocks should be on the radar for higher trading returns in the Short term.

Here is a list of top three stocks which could give 7-11% return in the next three-four weeks:

Siemens: Buy| LTP: Rs 1,219 | Target: Rs 1,300 | Stop-Loss: Rs 1,170 | Upside 7 percent

The stock has been forming higher tops and higher bottoms on the daily charts. It has surpassed the last 10 days consolidation range by closing above Rs 1,210 with higher volumes.

The stock is placed above its 20, 50, 100 and 200-DMA, which indicates uptrend on all time frames. Considering the technical evidence discussed above, we recommend buying the stock at CMP for the target of Rs 1,300 and keep a stop loss below Rs 1,180 on closing basis.

United Spirits: Buy| LTP: Rs 617 | Target: Rs 675 | Stop-Loss: Rs 588 | Upside 9 percent

After four days of running correction, the stock has resumed its primary uptrend. On the weekly charts, the stock price has broken out from the downward sloping trend line, indicating medium term breakout.

Moving average and Oscillator setup have been bullish on daily and weekly charts. Considering the technical evidence discussed above, we recommend buying the stock at CMP for the target of Rs 675, and keep a stop loss placed below Rs 588 on a closing basis.

Rallis India: Buy| LTP: Rs 166.5| Target: Rs 185| Stop-Loss: Rs 155| Upside 11 percent

The stock has broken out from a bullish inverse head and shoulder pattern on the weekly charts, indicating trend reversal on medium-term charts.

Volume during breakout was very high, which adds strength in the uptrend. The stock has recently surpassed the crucial resistance of 200 DMA, placed at Rs 156.

Considering the technical evidence discussed above, we recommend buying the stock at CMP, for the target of Rs 185, and keep a stop loss below Rs 155 on a closing basis.

(The author is Senior Manager, Advisory - PCG at HDFC Securities)

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