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#39;Golden Crossover of 50*200 DMA indicates strong price action in favour of bulls#39;

November 18
11:29 2019

Shabbir Kayyumi

Negative news flow turned market sentiment negative as index witnessed profit booking at the start of last week after touching the high of 11,973 levels. Though Nifty took support during the week from the line of parity standing around 11,800 levels and saw short covering in the last two trading sessions, the broader price setup remains of profit booking.

Last week, RSI had given a breakout and made a high of 73 then after it is trading lower or retracing towards centerline placed at 50 levels, this behaviour is called as “RSI PBB” setup.

RSI PBB is pull back buy setup which indicates, RSI will move 50 levels and thereafter move towards previous swing high. Currently, the Benchmark Index is going through this setup and post current correction; we expect higher price movement towards life high 12,100 levels in the coming days.

At the same time, Nifty is trading higher above all popular moving averages (20/ 50/100/200) DMA indicating a strong bullish bias to continue further. Also, the recent formation of Golden Crossover of 50*200 DMA indicates strong price action in favour of bulls in mid-term.

A lot of activity in FNO segment has been seen, whereas the highest Open Interest (OI) in PUT is around 11,600 strikes followed by 11,500 strikes; whereas maximum Open Interest (OI) in CALL is around 12,100 levels, followed by 12,000 strikes suggest a trading range for the month is 11,500 and 12,000 marks.

Moreover, a sustained move above resistance of descending trend line & psychological levels standing near 12,000 will push prices higher towards previous life high standing around 12,100 which can extend towards 12,400 levels whereas supports lies near 11,800 marks.

Bank Nifty 

Banking index has managed to raise close to major psychological levels of 31,200. If the banking index sustains above 30,900 marks, it can extend higher towards its life high placed around 31,700 levels.

Trade Recommendation

Vedanta | Buy Around: Rs 140 | Target: Rs 165 | Stop Loss: Rs 128 | Upside: 17 percent

The stock is undergoing consolidation in the longer time frame and is on the verge of resuming its prior trend from the polarity area of support. The momentum indicator MACD has crossed the signal line indicating a start of a fresh trend.

The RSI is above its key 50 mark indicating positive momentum on its side. A pause at the area of polarity suggests a significant rebound is likely and hence we recommend buying Vedanta around Rs 140 with a stop loss of Rs 128 and aim for a target of Rs 165.

Biocon | Buy Around: Rs 252 | Target: Rs 290 | Stop Loss: Rs 236 | Upside: 15 percent

Bargain hunting is seen near lower levels in the scrip from where it has formed a strong base. Currently, it gave breakout from its double bottom pattern with decent volume on daily chart. Moreover, it formed a bullish belt hold after taking support from 20 DMA’s on the daily chart indicate further upsurge.

It also took support from its 200 DMA while bouncing back on upside. Indicator and oscillators also lending support to the price action. Traders can enter at Rs 252 for the target of Rs 290 while keeping a stop loss of Rs 236 marks.

Cipla | Buy Around: Rs 455 | Target: Rs 495 | Stop Loss: Rs 435 | Upside: 5 percent

The daily chart of stock reveals that demand is increasing and supply is diminishing. Emerging inverted Head & Shoulder pattern at lower levels is displaying trend reversal and creates buying opportunity at the current juncture. As of now, the sustainability of RSI above 9 DMA indicates rise on the upside with positive divergence.

Apart from this, the declining histogram in MACD signals optimism, suggest upside move in the counter in coming sessions. We recommend buying Cipla around Rs 455 with a stop loss of Rs 435 for the target of Rs 495.

(The Author is Head of Technical Research at Narnolia Financial Advisors Ltd.)

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