Markets entering a corridor of uncertainty; stay light: Angel Broking

Technically, the bullish structure remains intact as long as Nifty trades above 10,200-10,300

Nifty Outlook 

Last week, domestic markets started on a weak note owing to some sluggish cues from the global markets. However, the optimist traders pounced on this opportunity and used decline to create bullish bets. As a result, we eventually managed to surpass the recent hurdle of 10,350-10,360 during the mid-week. This was followed by a continuation of the northward march throughout the remaining part of the week to conclude the week at 4-month high point. 

In the recent past, despite intermediate hiccups, we maintained our bullish stance and advocated against going short on the market. The strategy played out well as we have seen all declines getting bought into and in the process, we managed to reclaim the 10,600 mark. Now, from hereon, it would be very difficult for traders to carry their positions overnight as we have approached a corridor of uncertainty now. If we look at the daily chart, the Nifty has reached a higher end of the ‘Rising Wedge’ pattern and the major ‘200-SMA’ is placed in the zone of 10,800-11,000. So, at every 100-150 points upmove, the bulls will have to tackle these hurdles. Hence, in our sense, the traders who have been enjoying this bullish journey since the last three months should ideally start lightening up their positions. Although the texture has not changed, it is better to be safe than sorry and hence, one should take one step at a time now.  

Technically, the bullish structure remains intact as long as we are trading above 10,200-10,300, and ideally, we could have asked to trail stop losses at these levels. Theoretically, it may be correct but practically, the risk-reward ratio is not favorable in terms of this strategy, and hence, we advise traders to stay light and wait for further developments. If we manage to go beyond 11,000, we would see next leg of the rally and there we can aggressively start participating again. 

 Stock recommendations: 

1. NSE Scrip Code – CENTURYPLY 

View  –  Bullish 

Last Close  – Rs. 125.05 

Justification – This counter initially underwent a long consolidation after the March month destruction. Since it was trading around its multi-month supports, we can interpret this consolidation as a base building process. Recently, the stock prices started to show some signs of revival and finally, on Friday, we witnessed a price-volume breakout after a brief pause. This development can also be termed as a ‘Bullish Flag’ breakout. Looking at the daily and weekly time frame charts, the stock prices are likely to continue this northward trajectory. Hence, we recommend this stock for a target of Rs.136 in coming weeks. Traders can keep their stop losses at Rs.117. 

2.  NSE Scrip Code – KALPATARU POWER 

View  –   Bullish 

Last Close   –   Rs.234.15 

Justification – In the last few weeks, we have seen a good rally in the broader market and few stocks from the cash segment have soared to a great extent. This counter has been consolidating. Meanwhile, on Friday, we witnessed a first sign of strength. We have seen lot of intraday attempts to come out of the congestion zone; but with Friday’s tail end surge, the stock prices managed to confirm a breakout on a closing basis for the first time in recent past. If we look at the volume activity, it has picked up substantially and, hence, we may see stock giving some catch up rally to some of the peers. Hence, we recommend a buy at current levels for the target of Rs.247 over the next 14 sessions. The stop loss should be fixed at Rs.226.70.
Disclaimer: Sameet Chavan is Chief Analyst- Technical & Derivatives at Angel Broking Ltd. Views are personal.