Stock calls by Sameet Chavan of Angel Broking: Sell Tata Motors, Biocon

One can see a formation of 'Bearish Engulfing' pattern on Tata Motors' daily chart

Nifty Outlook 

This week, our markets started off higher owing to favorable cues from their global peers. Subsequently, Nifty slipped into a consolidation mode as the real focus shifts to the mid and small cap universe. For the first four straight sessions, Nifty gyrated in a very slender range around 11,300-11,350. The similar price behavior was witnessed on Friday as well during the first half. However, all of a sudden, major global markets started correcting sharply which had a rub-off effect on our markets as well. Nifty, which was merely vacillating in a range of 80-100 points throughout the week, finally succumbed to the selling pressure and went on to test the 11,100 mark. Eventually, due to modest recovery towards the fag end, Nifty concluded the week tad below 11,200, marking more than a per cent loss on Friday. 

Friday’s correction was no surprise to us as we have been consistently been advocating caution in our intra-week commentary as well as previous weekly report. Let us first understand why 11,300 – 11,350 is considered to be a sturdy wall. Firstly, the 78.6 per cent retracement of the entire fall from 12,430.50 to 7,511.10 comes around it. Secondly, the 100 per cent ‘Price Extension’ of the first up leg (7,511.10 - 9,889.05) from 8,806.75 precisely coincides around 11,300-11,350. Now, if we take a look at the daily chart, the ‘Head and Shoulder’ pattern is clearly visible and this is what we mentioned in our daily commentary. Friday’s low precisely coincides with the neckline level of this pattern. Hence, going ahead, a breach of 11,100 would lead into an immediate correction towards 10,975 – 10,875. Here, 10,875 would be seen as a key support, because a breach of this would result in a strong corrective move in the next few days. This was overall a price-wise hypothesis on Nifty; but we would also like to highlight one time-wise observation as well. On the weekly chart, if we apply ‘Fibonacci Time Series’ from March lows, the current weekly candle ends 6th ‘Time Zone’ and is entering a new one. Generally, such points are considered a potential reversal zone and hence, one needs to be a bit cautious going forward as our anticipation may probably turn into a reality below 11,100. 

Throughout this week, our benchmark did nothing and the real action was seen in the broader market. As we all know, when mid and small cap counters start moving, it generally creates a euphoric situation and this is exactly what we witnessed. Since the MIDCAP 50 was approaching the ‘200-SMA’ on the weekly chart, we advised caution on Thursday and the index obliged to our view. To summarize, we would like to mention that even if the market goes through some corrective phase for some time, it will certainly not be as severe as the March one. Hence, a healthy correction would probably provide better entry points for those who have missed the bus in the last few months. 

Stock recommendations: 

NSE Scrip Code – BERGER PAINTS 

View  –  Bullish 

Last Close  – Rs. 555.15 

Justification – This stock has been consolidating for the last one and a half month along with its peer counters. However, last Friday, we witnessed stellar moves in this space. ‘BERGER’ and ‘ASIAN PAINTS’ both have identical chart structures; but looking at the placement of ‘RSI-Smoothened’, ‘BERGER PAINTS’ looks a notch better. Price-wise, we can see a decisive breakout happening from recent congestion zone along with sizable volumes, providing credence to the move. Throughout the last week, the stock consolidated and did not participate in Friday’s correction. Hence, we recommend going long on a decline towards 545-535 for a target of Rs 590 over the next few days. The stop loss can be placed at Rs 510.  

NSE Scrip Code – INDIGO 

View  –  Bullish 

Last Close  – Rs. 1139.15 

Justification – INDIGO has been the laggard since lthe ast ten months, but the way the stock has surged in the last three days, it appears that it has come out of a slumber and is likely to give some decent moves. On the daily chart, we can see a breakout happening from the ‘Triangle’ pattern along with sizable volumes, indicating immense buying interest after a long underperformance. The RSI-Smoothened oscillator on daily chart has entered a bullish territory, which we believe would provide impetus for the next move. Hence, one can look to go long for an extended move towards Rs.1,250-1,300 over the next few weeks. Use dips towards 1,080-1,050 to go long and the stop loss can be placed below Rs.980.  

NSE Scrip Code – TATA MOTORS 

View  –  Bearish 

Last Close  –  Rs. 124.60 

Justification – Recently, the entire AUTO pack has performed well and this, one of the laggards, too, managed to clock handsome gains. From March lows, the stock prices have almost doubled but overall, it is still trading at much lower levels. On Friday, we finally saw some pause to the recent up move and price-wise, we can see a formation of ‘Bearish Engulfing’ pattern on daily chart. Since the pattern has developed precisely around 200-day SMA, the stock can undergo some corrective move in coming days. Hence, we recommend going short around 126-128 for a downside target of Rs. 118-116. The stop loss needs to be maintained at Rs.133.80.  

NSE Scrip Code – BIOCON 

View  –  Bearish 

Last Close  –  Rs. 395.10 

Justification – The PHARMA space is in a different zone altogether and is clearly enjoying its Bull Run. But, this stock seems to have decoupled a bit recently from its other peers. It is undergoing some price-wise as well as time wise correction. In the midst of all this, we witnessed a breakdown happening from near-term supports and prices are struggling to pass the 400-mark now. Although, the higher degree chart structure still remains bullish, we expect some profit booking to extend. Hence, purely with a trading punt, we recommend going short around at current levels for a downside target of Rs. 378-375. The stop loss needs to be maintained at Rs.408.  

Disclaimer: Sameet Chavan is Chief Analyst- Technical & Derivatives at Angel Broking Ltd. Views are personal.