Trading ideas: Two stock recommendations for the coming week

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The domestic markets made history during the month of July 2021 for two reasons. Firstly, the Nifty index registered a new lifetime high of 15,962 and number two is the derivative series of July 2021 has been the most sluggish since April 2019. The entire range of Nifty during the series of July 2021 was 2.81% (449 points) whereas the range during April 2019 was 2.59%.

Although the benchmarks remained stuck in a narrow range we witnessed considerable stock specific action in broader markets. On the downside, the discussed support of 15,400 remained untouched while Nifty ended the month of July with a marginal change of +0.26%. On the derivatives front, open interest has decreased by 2.03% on an expiry-to-expiry basis. Rollover of Nifty stood at 82.76%, which is higher than its quarterly average of 76.06%. The high rollover figure is mainly due to the low base of open interest.

Now the daily chart of Nifty indicates that the index is stuck in a band for around two months. If we plot a Bollinger band indicator on a daily scale then we can conclude that there is a squeeze in them due to consolidation. Generally, such squeeze in the Bollinger band is followed by faster price action in either direction.

So one needs to be prepared for such kind of momentum. On the pattern front, we are witnessing a ‘Broadening Top’ kind of formation. A breakout or breakdown from this pattern would dictate further trends. The breakout would be confirmed on a close above 16,000 while the breakdown would get confirmed below 15,600 on a closing basis.

A convincing move above 16,000 would pull the index towards the 16,400-16,500 mark. On the contrary, a breakdown below 15,600 would apply breaks to the bullish momentum. In a worst-case scenario, we expect Nifty to find support at 15,000 during the month of August 2021. Now even if the index reaches a new high we maintain our stance that short term traders should keep booking their long positions since few data points indicate that there is a possibility of a temporary top near 16,500. Well, that needs confirmation but if we look at the VIX then it has turned from its all-time support zone of 12-10. The VIX suggests that the consolidation phase is about to end and markets might turn volatile going ahead. Thus, we advise short term traders to stay extremely selective while picking up long bets and remain vigilant in case of any ambiguity going further. Investors should wait for a significant dip in stocks to create fresh longs.

With regards to the Nifty Bank index, it remained in a range of 1,900 points throughout the series and concluded the July series below the 35,000 -mark. The index again failed after confirming a breakout above its hurdle of 35,800, and again slipped into a consolidation phase. Unless and until we don’t get participation by the financials it would be difficult for the markets to rise higher. Only if the index sustains above the 36,000-mark then it could possibly travel towards life time highs of 37,700 and also towards the 40,000-mark. On the downside 33,900 could be a major decisive support for the coming weeks. A breach of the same might result in strong selling pressure in the banking space which could drag the index towards 33,000 – 32,000 in August 2021.

Recommendations:

GMR Infra | Buy | Stop loss: Rs 27 | Target price: Rs 31 Previously the stock rallied towards Rs 34 after a breakout above Rs 27 mark. Now the stock has retested that breakout zone and has turned up.

Nesco | Buy | Stop loss: Rs 580 | Target price: Rs 655 The stock has found support at the placement of 89 EMA and also the Ichimoku cloud on the weekly scale. One can buy the stock on a dip near Rs 605 for the coming week.

(The writer is AVP: Technical Research at Anand Rathi Shares & Stock Brokers, views expressed are personal)