The dismal action atop mount 10K in the past few sessions ended in rather dramatic fashion as volatility made its presence felt on Thursday. BankNifty was the prime architect of the market downfall in the first half of Thursday’s trade.
However, a comeback by defensives (pharma and select IT names) along with strength in HDFC provided some respite. Despite the first half’s sharp sell-off, bulls defended the support zone of 10029, the peak marked on gann anniversary period and 10038 (derived by multiplication of 270 degrees by applying a square of 9 from the recent low of 9,740).
The Nifty ended lower for the third consecutive session on Thursday, although the appearance of a large lower shadow in Thursday’s trade indicates renewed buying interest at lower levels.
The Nifty breadth remained mildly negative with 33 of Nifty50 constituents settling lower. Moreover, Nifty filled its upward gap at 10,115 formed on 18th September.
Violation of gapping support with sharp downticks usually indicates changed market sentiment due to overhead resistance at higher levels. Seemingly, the range-bound action between 10200-10000 band would continue to digest the recent sharp up moves.
Here is a list of top five trading ideas which could give a return of up to 11% in the short term:
Ajanta Pharma: BUY| Target Rs1360| Stop Loss 1230| Return 8%
Ajanta Pharma went through a sharp phase of correction after making a high of Rs1,135 in October 2016. Recent low of Rs1,135 (made in August 2017) provided respite to the stock.
An appearance of ‘Hammer’ candlestick pattern on the weekly chart restricted the selling pressure and the stock began a process of bottoming out.
It is a process, in which the stock moved around in a narrow range, doing nothing spectacular. Ajanta Pharma for the last four weeks was stuck between the Rs1,175-1,240 range.
In Thursday’s trade, it confirmed a breakout from the base building process, suggesting a fresh move on the upside in the near-term.
Also, the stock managed to breakout above a new orbit which indicates strength in the current move. As per above mentioned technical parameters, we recommend a buy on Ajanta Pharma above Rs1,260 with a stop loss of Rs1,230 for a target of Rs1,360.
Hindalco Industries: SELL| Target Rs217| Stop Loss Rs243| Return 11%
Hindalco had a swift rally of 50 percent in 2017 and surged to Rs250 odd levels. However, momentum stalled there and the stock made a fairly bearish pattern. It is now giving a strong topping out pattern.
Clear signs of distribution are visible and short-term moving averages have given a negative crossover. Whenever momentum stocks start falling down and makes a distribution pattern, it is an indication that decline could be big.
It has also given a breakdown from the upward sloping channel. It has reversed from the midpoint of current gann channel and a fall below Rs225 would accentuate the fall.
Based on above parameters we recommend creating Hindalco September shorts positions around Rs235 with a stop loss of Rs243 for a target of 217.
Havells India: SELL| Target Rs465| Stop Loss Rs515| Return 8.8%
The stock had been moving higher since August 2017 in an up trending channel. It had rallied from a low of Rs453 to a high of Rs521. It completed the 270-degree move on the upside.
Once the up trending cycle came to an end, the stock failed to sustain at the top. Also, it failed to clear the upper-end of the recent gann channel which resulted in a sharp decline.
In the process, the stock broke down below the rising channel pattern. The risk-reward ratio of creating shorts is now ideal with limited upside likely in the near term.
A breakdown on multiple counts suggests weakness. We recommend a short on Havells Sep Fut around Rs500 with a stop loss of Rs515 for a target of Rs465.
Tech Mahindra: BUY| Target Rs480| Stop Loss Rs440| Return 4%
The stock is going through a phase of consolidation after a sharp decline which suggests exhaustion of selling pressure. Back in April 2017, it had made a peak of Rs402 and went through a sharp correction, unable to sustain above the midpoint of gann channel.
However, it took support at its 48-weekly EMA and began a process of consolidation. Following a phase of base-building at the bottom, the stock staged a breakout above the downward sloping trendline.
The pattern of consecutive higher highs and higher lows on the weekly time frame above the midpoint of current gann channel suggests a reversal.
Keeping in mind, above-mentioned parameters, we recommend a buy on Tech Mahindra between Rs450 – Rs455 with a stop loss of Rs440 and a target of Rs480.
Mahindra Holidays & Resorts India Ltd (MHRIL): BUY| Target Rs385| Stop Loss Rs350| Return 7%
The stock has found support at the point of polarity placed near the three-digit gann channel of 361. In fact, the stock is consolidating at the bottom for last five weeks after a sharp corrective move from Rs490, which has led to exhaustion of selling pressure.
The phase of consolidation near the critical gann number & point of polarity support suggests resumption of the previous up move. Moreover, the support of 25-weekly moving average also came to the rescue of the stock.
Historically, this moving average has provided multiple buying opportunities on declines. A move above Rs361 would confirm a breakout from recent phase of base building. Buy MHRIL above Rs361 with a stop loss of Rs350 for a target of Rs385.
Disclaimer: The author is Head of Technical Research at IIFL Private Wealth. The views and investment tips expressed by investment experts on moneycontrol.com are 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.