E-conversation with Rajesh Palviya – Tackling Volatility in Equity – Axis Direct
E-Conversations by Mr.Rajesh Palviya,Head–Technical & Derivatives Analyst,Axis Securities
Apr 09, 2018 | Source: AxisDirect
Tackling Volatility & Top performing Stocks
Q) The Nifty50 rose nearly 2% for the week ended 6 April 2018 despite wild movements in either side. How do you see markets panning out in the coming week?
In the last week, Nifty has witnessed high volatility and managed to close above 10300. On the weekly chart, the index has given a breakout from its down sloping trend line. Nifty managed to close on a positive note for the second consecutive week and recovered above its 200 Day SMA (10190) which indicates strength ahead. The chart pattern suggests that if Nifty crosses and sustains above 10350 levels then it would witness buying, leading the index towards 10400-10500 levels which is likely to act as a stiff resistance in the near/short term. Nifty has support at 10,260 levels; any violation of this support zone will cause further profit booking towards 10200-10100 levels. Nifty is expected to trade in range of 10150 -10500 in forthcoming weeks with mixed bias.
Q) Nifty flirted with its 200-DEMA in this past week, but there are plenty of stocks which are trading above their long-term average. How traders should decipher the data with respect to moving averages and are these stocks a value buy?
The 200 DMA is considered a key indicator by traders for determining the overall long-term trend. The price levels in a market that coincide with the 200 SMA, is recognized as a major support when the price is above the 200 SMA or resistance when the price is below the 200 SMA level. As long as a stock's price remains above the 200 SMA on the daily time frame, the stock is generally considered to be in an overall uptrend. In this volatile market one should buy the stocks holding above their 200 DMA and despite corrective action not breaking below it. There is a high probability of outperformance in those stocks when there are positive moves in the market and they may recover faster than other stocks. Nifty manages to recover above 200 DMA (10190) that’s why we are witnessing some buying action in the market. However, the Nifty bank is still facing a hurdle to cross its 200 Dma (25140) since last 3-4 weeks that’s why we are witnessing underperformance in banking stocks in this rally.
Q) What is your call on smallcap and midcap stocks which underperformed in the month of March? Should investors stay away or just book profits on rallies?
Midcap and smallcap stocks generally performance in healthy market condition. Since last two months we are in negative trend and witnessing high volatility due to domestic and global cues which is creating uncertainty amongst investors. Smallcap and midcap stocks are likely to underperform for some more time so we advice booking profits on rallies. However some quality midcaps and smallcap which has already corrected 30-40% from their peak and holding above their 200,100 dma levels can be added in portfolio.
Q) What should be the ideal strategy of investors in April series – buy on dips or sell on rallies? Any F&O strategy which can be deployed for April series?
Derivative data suggests highest put concentration exists at 10,000 strike - likely to act as Major support in April Series. The second higher Put concentration is at 10200 which is likely to act as immediate support in near term. PCR OI is still at elevated levels of 1.17 has not seen much a drop in this rally. Call option IVs have dropped from 17% to 12.5% while Put option IVs have dropped just to 16.7% from its peak of 18%. Thus widening the implied volatility differential indicates that still shorts are there in markets; whereas the highest Call concentration is seen on 10,500 strike price- likely to act as resistance for short term. Volatility is going to be new normal and we are likely to witness some consolidation in market in near term. However, if Nifty moves towards 10,450-10,550 levels, we advice to sell on the higher side since we expect 10,600 is likely to act as tough and stiff resistance for short term.
Q) Top 3-5 positional call which could give handsome returns to investors in April series?
In past couple of weeks, the stock has observed strong buying momentum from its earlier multiple support zone 1140 levels with rising volumes. It has also confirmed a " Bullish Engulfing Pattern" - a short-term reversal pattern on weekly chart which signals strength ahead. The stock is also sustaining above its short and medium term 20, 50 and 100 day SMA which supports positive trend ahead. The weekly strength indication RSI and momentum indicator Stochastic both are in bullish territory which supports further rally to continue.
Buying Range 1298-1280 SL 1240 TGT 1370-1390
Since Feb.2018 the stock was under consolidation within 502-450 levels, however, this week's strong buying momentum gave a decisive breakout at 502 levels on closing basis.This breakout is accompanied by huge volumes indicating increased participation on rally. The stock is also sustaining above its 20, 50 and 100 day SMA which supports bullish sentiments ahead. The weekly strength indication RSI and momentum indicator Stochastic both are in bullish territory which supports further rally to continue.
Buying Range :522-515 SL 503 TGT 540-550
MPHASIS CMP : 869
On the monthly chart, MPHASIS has been consolidating from Feb’ 11 to Jan’18 and gave a breakout towards the end on the same month. The consolidation in MPHASIS happened in the form of ‘Rounding Bottom’ pattern. The breakout happened at 800 levels. These breakouts were also accompanied by high volumes. The stock reacted a bit towards the breakout level in Feb’18 and March’18. The stock is in the higher top and higher bottom at the daily, weekly and monthly chart indicating the strong and sustainable bullish trend.