Markets

Sit out the weak phase, use declines to buy stocks

In our previous note, we had mentioned that technical factors will continue to weigh heavy on the market. The overbought market continued to see consolidation on Thursday and saw a modest decline of 67.85 points, or 0.67 per cent.

Two things have come to light in a very dominant manner. First, the 10,114-10,140 zone remains very critical to watch out for, and secondly, a huge amount of short positions is being added, which is likely to keep the overall downside limited.

The 10,090 and 10,140 levels will act as immediate resistance for the market, while supports will come in at 9,970 and 9,925 levels.

The Relative Strength Index or RSI on the daily chart stands at 63.5319 and it has just crossed the top formation, which is a bullish signal. The RSI has marked a fresh 14-period low, which is a bearish indication. Further, with the RSI setting a fresh 14-period low and the Nifty50 not doing so has resulted in a Bearish Divergence as well.

The daily MACD still remains bullish while trading above the signal line, but it is moving sharply towards reporting a positive crossover.
Pattern analysis suggests the market is likely to continue to retrace some more from a sharp rising wedge formation on the close charts. The immediate pattern support that it can look out for is the short-term 20-DMA.

Overall, lead indicators very clearly suggest that some temporary weakness is likely to persist for some more time. At the same time, continued increase in the Open Interest also points to addition of shorts in the system. The best method to approach the market at this point would be to strictly avoid any significant short positions. It is best advised to sit through any corrective move and utilise downsides to make select purchases.

STOCKS TO WATCH:
1. HAVELLS: Buy this stock above Rs 486 with a short-term target of Rs 500. The stock has attempted to break out of a consolidation formation. An attempted breakout is seen from a symmetrical triangle formation and this has come with higher-than-average volumes. The narrower-than-normal bands also point towards likely sharp uptick in the prices over coming days. The MACD remains in continuing buy mode. (Any call on this above the prescribed level would be positional and not intraday.)

2. BHARTI ARTEL: Buy this stock above Rs 424 with a short-term target of Rs 432. After marking recent highs, the stock saw some minor corrective decline and consolidated in narrow range. An bullish engulfing candle has occurred after a decline and this shows that upward momentum may resume. A buy signal over Stochastic has emerged on the daily charts. The RSI is neutral marking higher highs on its pattern. The daily MACD is moving towards reporting a positive crossover in the coming days. (Any call on this above the prescribed level would be positional and not intraday.)

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. Contentions made in this article are mere observations. Investors should consult their financial advisers before taking any positions based on these remarks. Views expressed are the author’s own do not represent those of ETMarkets.com. The author can be reached at milan.vaishnav@equityresearch.asia)

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