Don't get carried away by momentum, use rallies to exit longs:Angel Broking

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Stock calls and outlook on Nifty by Sameet Chavan, Chief Analyst- Technical & Derivatives, Angel Broking:

 

Nifty Outlook

 

This week, markets behaved like a double-edged sword as we saw some follow through selling in the initial part after last week’s intimidating selling and then the latter part was clearly dominated by the optimistic traders. In fact, the momentum was so strong; the Nifty managed to recover previous four days of losses in last couple of sessions to eventually end up reclaiming the 10250 mark on a closing basis.

 

Now, the question arises whether this is just a temporary bounce back or markets have already bottomed out? In our sense, markets were slightly oversold and 10000 being a psychological support, some breather was on cards. Yes, index has surpassed our expected resistance of 10220 convincingly; but, we have to accept such moves especially when the higher degree undertone is still bullish. Going ahead, we continue to remain a bit cautious when it comes to near term outlook. The ‘Lower Top Lower Bottom’ formation is visible and as per the ‘Dow Theory’, any move in the opposite direction of this structure is considered as a pull back or a retracement. Hence, going by this rule, we construe this as a relief rally and expect the index to face strong selling pressure at higher levels.

 

At this juncture, many would have started assuming that the market has completed its recent correction and similar to last two occasions, the index is heading for new highs after a truncated corrective move. We do not want to challenge it but looking at above mentioned evidence, we don’t belong to this bandwagon at this point in time. Going forward, 10273 – 10312 would be seen as immediate hurdles; whereas, on the lower side, 10220 – 10180 needs to be tracked quite closely as a violation of this support may result into further weakness towards 10050 – 10000. Traders are advised not to get carried away by this momentum and rather use such relief rallies to exit existing long positions.

 

Stock recommendations:

 

Piramal Enterprise - Bullish

Last Close – Rs 2,879.95

 

Couple of weeks back, we saw this stock breaking out from a near term congestion zone and thereby confirming a ‘Triangular’ pattern around 2750. However, due to lack of follow up buying, the stock consolidated around its breakout point. On Friday, a massive buying resulted into a resumption of uptrend, which was supported by huge volumes. Going ahead, the stock has a potential to surpass the 3000 mark. Hence, we recommend buying on a minor dip for a target of Rs.3060. The stop loss can be fixed at Rs.2730.

 

Godrej Consumer Products - Bullish

Last Close – Rs 1,007.65

 

Last week, the stock prices broke out from the near term consolidation around the 990 mark. The volume activity during this price development picked up substantially; providing credence to the breakout. In addition, the ‘RSI-Smoothened’ oscillator traversed the 70 mark in upward direction, which we believe would provide the impetus for next leg of the rally. Short term traders can look to buy this stock for a target of Rs.1051 by following a strict stop loss of Rs.953.

 

: The analyst may have positions in any or all the stocks mentioned above.


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