Last week’s price action can be termed as a ‘bull trap’ as Nifty failed to carry the bullish momentum and slipped inside its broad trading zone. Technically speaking, such false breakout is a sign of caution and we have seen a decent amount of correction during the last week.
Nifty has broken the crucial support of 10,800 that further convinces that the bears have upper hand. The index closed with a loss of about 2 percent.
Looking at the daily chart, we see a formation of ‘evening star’ pattern, which is a trend reversal pattern. The said pattern was confirmed on February 11 as Nifty ended well below 10925.45.
Considering the false breakout theory, the retest of the lower band of its trading range is quite likely, which means sooner or later Nifty might retest the 10,580–10,530 zone, which is a crucial support range.
Any decisive closing below 10,530 will trigger a sharp sell-off and in that case, the index can fall further towards 10,350. On the other side, 10,875-10,920 will be a strong supply zone and only sustainable move above this range will bring some relief rally to the market.
Here are three stocks that could give 6-17 percent return in the short term:
Maruti Suzuki India: Sell around Rs 7,050–7,100| LTP: Rs 6,925| Target: Rs 6,500| Stop loss: Rs 7,330| Downside: 6 percent
After hitting a fresh 52-weeks low of Rs 6,317.70, the stock witnessed a decent recovery and rallied towards Rs 7,300. Subsequently, the stock failed to hold its gains and resumed its southward journey.
Looking at the daily chart, Rs 7,300 coincides with the 61.8 percent retracement of its entire swing move joined from the top of Rs 7,949.75 to the bottom of Rs 6,317.70.
Also, it coincides with the trend line resistance which has been broken during late January 2019. The daily RSI(14) has signaled an overbought condition that indicates that the recent up move is merely a pullback and the overall trend of the stock is still downward.
Hence, we advocate traders to build a short position in Maruti Suzuki India in the range of Rs 7,050 to Rs 7,100 with a downside price target of Rs 6,500. A stop loss should be placed above Rs 7,330.
Bharat Petroleum Corporation: Sell around Rs 320–325| LTP: Rs 327| Target: Rs 270| Stop loss: Rs 345| Downside: 17 percent
Looking at the weekly chart, the stock was in a protracted downtrend since the beginning of November 2017. It hit a 52-week low of Rs 238 on October 5, 2018.
Subsequently, it saw a decent pullback and rebounded towards Rs 376. However, the bullish momentum was exhausted as the stock faced some resistance near weekly 89-EMA.
Also, the 50 percent retracement of its entire fall from the top of Rs 524 to the bottom of Rs 238 is placed near Rs 380. The rising crude oil price put further pressure on the stock and as a result, it tumbled sharply and broke the crucial support of Rs 330.
Considering the above evidence, we recommend traders to go short in this counter in a range of Rs 320 to Rs 325 with a price target of Rs 270, and a stop loss should be placed above Rs 345.
Infosys: Buy around Rs 740–730| LTP: Rs 741| Target: Rs 800| Stop loss: Rs 700| Upside: 8 percent
Looking at the daily chart, Infosys has been one of the outperformers among the technology pack and has registered an all-time high of Rs 772.25. However, the daily RSI(14) signaled a bearish divergence pattern and the move failed to confirm.
In line with the expectation, the momentum cooled-off and the stock gradually corrected and approach towards its previous all-time high of Rs 743 (October 1, 2018). Also, the daily RSI(14) signaled an oversold condition at this point of time.
We maintain our bullish view on stock and recommend traders to go long in this counter in a range of Rs 740 to Rs 730 with a price target of Rs 800, and a stop loss should be placed below Rs 700.
The author is Head – Technical Research, Way2Wealth Brokers Pvt Ltd.
Disclaimer: The stocks mentioned are for reference only and not buy or sell ideas. The views and investment tips expressed by investment expert on moneycontrol.com his their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.