The roaring uptrend continued and the Indian benchmark indices hit new all-time high in the week gone by. The positive RBI commentary added fuel to the fire in Friday’s trading session and the appreciation of approximately 300 points placed the Nifty above the 13,250-mark.
Moving ahead, the bullish bias is expected to continue in the coming trading sessions and the bulls could take the rally towards the 13,520 level. The “Bearish Engulfing” candlestick pattern formed on November 25, 2020, could not mature and the high of a pattern has been broken on an upside.
The bearish pattern failure is a stronger indication than the pattern itself and it is indicating the strength of bulls in an ongoing rally. The relative strength index (RSI) on a monthly time frame has started trading in a bullish zone in the previous month for the first time since January 2020 and the follow-up buying in the current month indicates that the bullish trend is still intact. The positive “reverse divergence” on the daily chart also suggests that the steam in the rally is still left.
Buy on dips could continue to be a prudent strategy until the level of 12,800 holds. For the forthcoming trading week, the 13,100 level (which is the 38.2 percent retracement level of the previous week’s trading range) is likely to provide a cushion to the prices on any dip. On the upside, the levels of 13,500 to 13,520 can be expected.
We have identified three trading ideas that are likely to provide up to 15 percent return in the short term.
Sumitomo Chemical India: Buy | CMP: Rs 306.55 | Target: Rs 352 | Stop Loss: Rs 284 | Return: 15 percent
The stock has been consolidating in the range of Rs 260 to Rs 310 since June 2020. The recent rounding formation in the counter suggests that bulls are likely to take the rally forward and the breakout of a trading range might not be ruled out. The short and medium-term moving averages have developed a positive curve along with bullish crossover.
The momentum indicators are trading in a bullish zone and the rising average directional index (ADX) suggests that the stock is getting ready for a trending move in the short term. The violation of a falling trend line resistance is likely to provide further strength to the stock and could trigger a fresh leg of an upmove.
Traders can initiate buying in the counter at the current market price (CMP) and can add more once the prices start trading above Rs 310. The close above Rs 310 could trigger a sharp upmove in the stock and could be a prudent trading idea for the short term.
Larsen & Toubro: Buy | CMP: Rs 1,149.5 | Target: Rs 1,265 | Stop Loss: Rs 1,100 | Return: 10 percent
After a recent move, the stock went sideways for the last few days which resulted in the formation of a bullish flag. The pattern suggests that a fresh leg of an upmove can be expected in the coming days after the recent consolidation. The bounce has been witnessed in the counter after testing its short-term moving averages and RSI has also bounced back from the significant support levels. As per the Fibonacci theory, the stock has taken support at the 23.6 percent retracement level of the latest swing move and showing a sign of strength again. Considering a lucrative trading opportunity, traders can initiate buying at CMP and on any dip till Rs 1,125 for the short term gain.
SRF: Buy | CMP: Rs 5,332.90 | Target: Rs 5,760 | Stop Loss: Rs 5,110 | Return: 8 percent
The stock is in a roaring uptrend and trading with the higher top and higher bottom cycle. Recently a mild consolidation has been witnessed in the counter and the prices have taken support at 20-day moving average.
The momentum indicators in monthly as well as in weekly time frame are trading in bullish territory and in the daily time frame, the RSI has bounced back from important support levels. As per retracement theory, the stock is trading with “justified good above series” and a fresh buying signal has been witnessed after a mild consolidation. The overall setup is painting a bullish picture for the short term and traders can initiate buying at CMP and on any dip till Rs 5,280.
(Manish Srivastava is the Senior Technical Analyst (Equity & Currency) at Rudra Shares & Stock Brokers Ltd. (SEBI Reg.No.INH100002524) (RA))