Escalated geopolitical tensions triggers volatility

After several attempts of holding the support levels of 16800 that coincided with key retracement and 200SMA; Nifty finally broke below it on Thursday that was in line with escalated geopolitical tensions. With this strong support being violated we witnessed a sharp selloff dragging Nifty towards 16200 with a sharp cut of 5% on Thursday.

Everything looked bleak however with strong recovery in global markets on Friday our markets as well rebounded recovering major part of Thursday’s loss however still ended the week with a cut of more than 3.5% to close tad below 16700.

Technically if we see prices have broken below key support levels and in spite of the strong bounce on Friday the charts are distorted. Now previous support around 16800 – 17000 is likely to act as resistance as we have a confluence zone of bearish gap and 200SMA in this zone. Unless there’s any development in the global front these levels are likely to act as stiff hurdle and any bounce towards it is likely to witness selling pressure.

On the flip side, 16400 – 16200 is the immediate support and If they are also broken then expect the benchmark to slip below 16000. Incase of second scenario where if Nifty tests sub-16000 it would be an excellent opportunity for investors to accumulate quality stocks in staggered manner.

Stock recommendations:

NSE Scrip Code – VOLTAS

View – Bullish

Last Close – Rs. 1252.30

Justification – Post the strong bounce back from the support levels of 200sma, the stock prices have relatively outperformed as compared to the broader markets. During the previous week, the stock prices had a strong closing on the weekly chart however due to the broad base selling during the last week this stock as well dipped a bit however on closing it has ended the week at highest point with no major change to previous week’s close. On the daily chart, we are witnessing a structural bottom formation that is witnessed with good increase in volumes this augurs well for the bulls. In addition, the prices are well above key moving averages indicating overall bullishness in the counter. We expect this stock to outperform and hence we suggest a buy at current levels and on dips to Rs. 1245 for a near term target of Rs. 1350. The stop loss can be placed at Rs. 1195.

2.  NSE Scrip Code – M&M

 View                  –   Bearish

Last Close          –   Rs. 807.60

Justification – For the last three months, the stock prices were gyrating within a range and during the last week prices after testing and failing the upper boundaries eventually broke below the lower boundaries. This has resulted in a bearish pattern breakdown known as ‘SYMMETRICAL TRIANGLE’. The pattern breakdown is seen with a bearish gap that can be termed as a bearish break away gap. Momentum oscillator i.e. RSI has slipped into negative territory and is trading below its recent previous lows that augurs well for the bears. Hence we expect this stock to see further weakness in the near term and hence we recommend a sell in this counter on bounce towards its immediate resistance of Rs. 820 for a near term downside target of Rs. 743. The stop loss can be placed at Rs. 845.

(The article is written by Rajesh Bhosale, Technical analyst, Angel Broking)