Bullish Harami candle suggests Nifty pullback rally can extend to 12,346

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The bulls were hammered with the Nifty slipping three sessions in a row. Severe profit-booking after testing fresh all-time high led to a loss of more than 340 points in just three trading sessions. Hope re-emerged on January 23. A Bullish Harami pattern on the daily chart provides an initial signal that this correction might get abated at current levels.

In the coming days, traders can expect the sideways move with positive bias and limited upside, as the bullish trend of the Nifty50 has been disturbed.

The gap-up opening of January 20 couldn't provide follow-up buying and closed off the day’s high, which resulted in a 'Bearish Engulfing' pattern. The big red candle has engulfed the previous six candles, indicating that bullish sentiments have been seriously damaged and a bounce back from current levels seems to be limited.

However, a bounce back from support levels and formation of 'Bullish Harami' candle indicate that the current pull-back rally could extend till 12,284 and 12,346.

Taking the Fibonacci theory into consideration, the prices have breached 161.8 percent projection level of the previous week range without retracing and generally, such fall is followed by sharp pullback.

There is contradiction in weekly and daily momentum indicators, where weekly Relative Strength Index (RSI) is trading in a bullish zone and the daily RSI is trading in a sideways zone.

The overall setup suggests that the medium-term trend is still bullish but for the next few days, we might trade in the 12,035-12,346 range with a positive bias. A further fall can be expected only if 12,035 trades on the lower side on closing basis, though that the probability is quite remote in the coming days.

NIFTY50 DAILY

Here are three stocks that can offer 4 to 7 percent return in the short term:

Heidelbergcement: Buy | Target: Rs 217 | Stoploss: Rs 196 | Return: 7 percent

Cement stocks have been in favour in recent times and the up move is likely to continue. The stock has given a flag breakout on the weekly chart and bounced back from the important moving averages. On the daily chart, there is a bullish crossover of major short-term and medium-term moving averages, where RSI has bounced back from important support levels. Traders can initiate long positions in the counter for term gain.

Bata India: Buy | Target: Rs 1,881 | Stoploss: Rs 1,760 | Return: 4 percent

The stock has been maintaining its bullish cycle of higher top and higher bottom. It has bounced back thrice from its 20-day moving average in the last few trading sessions. The mild correction has ended with the bullish candle and the counter seems to be ready for reversal after retracement. The counter is on the verge of breaking out of a rounding formation and getting ready for big moves. Short-term traders can participate in the rally, with probable target of Rs 1,881.

Nippon Life: Buy | Target: Rs 364 | Stoploss: Rs 334 | Return: 5 percent

After a massive up move, the stock has been consolidating for the last few weeks and showing signs of life again. The Weekly RSI is trading at important support level and on the daily chart, prices are bouncing back after testing the major medium-term moving average ribbon. Upward direction of short-term averages suggests that the up move is likely to resume again. Long positions in the counter can be initiated for short-term gain.

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