Nifty outlook & stock picks by Sameet Chavan: Buy HDFC Life, sell UPL

​Last Monday, the market session started on a flat note, however, before anyone could realise Nifty was down by nearly 200 points within the first half an hour to test the 15,600 mark. This was followed by a bounce back and then consolidation for the major part of the first half. During the second half, the bulls again picked up some momentum to erase all morning losses and ended marginally in the green, a tad above 15,800. The following day, Nifty reached yet another milestone of 15,900, but thereafter, some sort of tentativeness was visible in the banking space as well as the broader market. The real impact of this was witnessed on Friday as we saw Nifty tumbling more than 300 points in a matter of two hours. The action was not done yet as we saw almost a V-shaped recovery in the remaining part of the session and Nifty settled with a negligible loss. On the weekly basis, Nifty shed more than seven-tenths of a per cent.

It was clearly an action-packed week for the markets and despite defending the key levels, the Nifty ended its recent winning streak on a weekly basis. The price action on Friday was a somewhat ‘half glass full or half empty​'​ scenario. As an o​​ptimist, the key indices have managed to hold crucial levels but from a pessimist’s perspective, we are struggling at higher levels. More importantly, the outperforming MIDCAP index has started to display some signs of exhaustion. In our previous weekly commentary, we had mentioned how the NIFTY MIDCAP 50 has reached a cluster of various Fibonacci ratios and this week’s correction has clearly validated our assumption. We are now stepping into a monthly expiry week and looking at the overall positioning of our market, we expect the volatility to increase a bit. If we take a glance at the weekly chart of Nifty, we can see two back to back small body candles and this week's formation resembles a ‘Hanging Man’ pattern. Such a pattern requires confirmation in the form of breaking its low. Hence, it would be interesting to see how things pan out in the first half of the forthcoming week. As far as levels are concerned, 15,820 – 15,880 can be seen as immediate resistances whereas, on the lower side, 15,550 – 15,450 – 15,400 are to be seen as support levels. We advise traders to lighten up positions at higher levels and it​'​s better to take one step at a time for the time being.

Last week, sectorally we saw a lot of churning wherein defensive spaces like FMCG and IT showed some strength. Amongst the losers, Metals had a terrible week as we saw more than a 6 per cent cut in the index. Despite some recovery, the banking index ended the week with a nearly one and a half per cent loss. On expected lines, the NIFTY MIDCAP 50 index saw a meaningful correction of over 3 per cent this week.

Stock recommendations:

NSE Scrip Code – HDFC LIFE
View - Bullish
Last Close - Rs 709.20

Justification: This stock was bucking the trend throughout the second half of the week gone by when the broader market was undergoing a decent price correction. In fact towards the end, the prices started to accelerate to eventually close beyond their recent hurdle of Rs700 – 705. The weekly chart too confirmed the highest weekly close in the last three months. In addition, if we take a glance at the placement of the​ 'RSI​-Smoothened’ on the daily chart, it has crossed the 70 mark, which we believe should provide the impetus for the next up leg. Hence, we recommend going long for a short term target of Rs 746. The stop loss can be placed at Rs 681.

NSE Scrip Code – UPL  
View –  Bearish
Last Close –   Rs 808

Justification: This counter was one of the biggest losers on Friday and with this, it has snapped its recent winning streak. In this process, we saw the stock close below the crucial support of ‘20-EMA’on the daily chart after nearly two months. On the weekly time frame, this has led to a confirmation of the ‘Shooting Star’ pattern, which does not bode well for the bulls. Considering this evidence, further profit booking in this stock can not be ruled out. We recommend selling on bounce towards Rs 820 – 825 for a short term price target of Rs 765. The stop loss needs to be maintained at Rs 849.​

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Disclaimer: Sameet Chavan is Chief Analyst - Technical & Derivatives at Angel Broking. The analyst may have positions in one or more stocks. Views are personal.