Led by continued investor optimism, Nifty on Friday hit yet another record high level of 22,297.50. Until the support of 21,800 is defended, the upside bias remains intact, chart readers say. The RSI is far from the overbought territory, suggesting more room for an upward rally.
We spoke to an analyst on how one should trade stocks that were in focus in the previous trading sessions based on derivative and technical data:
Analyst: Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities.
HCL Technologies Rebounds Strongly from Support Zone, Signalling Potential Upside
On Tuesday, the stock of HCL Technologies took support near the 13-day EMA level and it coincides with the 50% Fibonacci retracement level of its prior upward rally (Rs 1551-1696). Thereafter it witnessed a sharp upside rally and ended above Rs 1680 level with a gain of over 3%. On a daily scale, it has formed sizeable bullish candle along with above its 50-day average volume. The stock has demonstrated remarkable outperformance compared to frontline indices. Notably, the Mansfield Relative Strength indicator has consistently remained above the zero line for the past 90 trading sessions, indicating sustained outperformance. As the stock is trading near an all-time high, all the moving averages and momentum-based indicators are suggesting strong bullish momentum in the stock. The daily RSI has taken support near the 60 mark and witnessed a sharp rebound, which is a bullish sign as per RSI range shift rules.
The derivative data is also supporting the overall bullish chart structure. The February future has surged by 2.69% and cumulative open interest of current, next and far series has surged nearly 3%. This indicates an overall long build-up. Examining the option chain, it’s notable that there is a concentration of call open interest at the 1700 strike, while considerable open interest on the put side is observed at the 1650 strike. Talking about option chain, from 1760 to 1670 CE strikes are witnessing call buying. While, on the put side, from 1710 to 1600 strike have witnessed put writing. This indicates bullish momentum in stock.
These technical and derivative factors are aligning in favour of bulls. Hence, we recommend accumulating the stock in the zone of Rs 1690-1670 with a stop loss of 1625. On the upside, it is likely to test the level of Rs 1760, followed by 1800 in short-term.
Short Covering Signals Bullish Sentiment for Canara Bank
On Tuesday, Canara Bank’s stock demonstrated resilience by finding support around the 8-day EMA level, which conveniently aligned with the 50% Fibonacci retracement level of its recent upward movement from Rs 534.60 to Rs 594.70. Following this support, the stock experienced a notable rebound, closing above the Rs 580 mark with a gain of nearly 3%.Currently, the stock is trading above its short and long-term moving averages. These averages are in a rising trajectory and they are in the desired sequence, which suggest the trend is strong. Both the daily and weekly Relative Strength Index (RSI) is in a super bullish zone as per RSI range shift rules. Additionally, the daily stochastic indicator has recently witnessed a bullish crossover. Furthermore, the daily Moving Average Convergence Divergence (MACD) remains bullish, as it continues to trade above both its zero line and signal line.
The derivative data signals significant short covering, with a 2.72% surge observed in the February series future. Meanwhile, there is a notable 2.58% decline in the cumulative Open Interest (OI) across the current, next, and far series.
There is a notable concentration of call open interest at the 600 strike. While significant open interest on the put side is observed at the 570 strike. Talking about option chain, from 600 to 560 CE strikes have witnessed call short covering. While, on the put side, from 580 to 267.550 strike have witnessed put long cover. This indicates bullish momentum in stock.
Hence, we recommend accumulating the stock in the zone of Rs 583-580 with a stop loss of Rs 560 level. On the upside, it is likely to test the level of Rs 610, followed by Rs 625 in the short-term.
