Last week’s price action resulted in a high-wave candle on the weekly chart, indicating profit booking amid elevated volatility. Over the past two weeks, the index has been consolidating at higher levels amid stock-specific action after rallying by about 9 percent in the preceding three weeks.
We believe that the index is likely to continue with its ongoing healthy consolidation in the broad range of 12,000-11,600 in the coming weeks.
The Nifty is likely to form a higher base by cooling off from the overbought situation. Therefore, a temporary breather towards 11,600 should be used as an incremental buying opportunity as we do not foresee the index breaching the exit poll session’s low placed around 11,600 levels anytime soon.
Structurally, an elongated up move along with shallow price correction signifies robust price structure that makes us believe the bias would remain positive as long as a key support threshold of 11,600 is respected.
The broader market is undergoing a secondary phase of correction after a recent up move witnessed in the month of May, which helped daily stochastic oscillator cool off from the overbought situation.
The rejuvenation of upward momentum in the broader market subsequent to the “Golden Cross” in Nifty midcap and smallcap indices indicates a major shift in trend direction.
Going ahead, we expect both indices to form a higher base and resolve out of long-term downward sloping trend-line that would lead to an acceleration of upward momentum.
Therefore, we advise investors to accumulate quality midcap stocks from a medium-term perspective.
Here is a list of top two stocks which could give 15-18 percent return in the next six months: Bharat Electronics: Buy| CMP: Rs 107|Target: Rs 127|Stop Loss: Rs 99|Upside 18 percent| Time Frame: Six Months
In the last week of May, the share price of Bharat Electronics registered a breakout above the six-month consolidation range (Rs 100 to Rs 73), signalling a reversal of the corrective trend and offered investors a fresh entry opportunity.
The stock has rebounded after forming a higher trough around Rs 85 and witnessed a faster retracement of the last falling segment as a 25-session decline (Rs 102 to Rs 85) was completely retraced in just seven sessions, highlighting a positive price structure.
The recent breakout area of Rs 100 is likely to act as a major support in the coming month. The stock has recorded a “Golden Cross” on the daily chart, on May 20 when the 50-day SMA crossed above the long-term 200-days SMA, suggesting a turnaround in trend direction.
We expect the stock to continue its current up move and head towards Rs 127 as it is the measuring implication of the range breakout (100-73= 27 points) added to the breakout area of Rs 100 signals upside towards Rs 127 levels in the medium-term.
KSB: Buy| LTP: Rs 718| Target: Rs 824|Stop Loss: Rs 638| Upside 15 percent Time Frame: Six Months
The stock has been forming a base for the last four months at the lower band of the rising channel which is in place since CY2015.
We believe that a stage has been set for prices to resolve higher and head towards Rs 824 in coming months, thereby offering a favourable risk-to-reward setup.
We expect the secondary corrective phase to get anchored around Rs 640 as the last 16 months’ correction retraced 78.6 percent retracement of preceding 16 months up move (Rs 543-938), around Rs 630 which coincided with 200-week lows EMA at Rs 660.
In a nutshell, the aforementioned technical evidence suggests that the stock will resolve higher and head towards Rs 824.
(The author is Head Technical at ICICI Direct.com Research)
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.