The Nifty50 has been falling for the last 5 straight sessions with a total fall of 423 odd points from the recent high of 10,929, registered on 15th May 2018.
After forming a bearish Gravestone Doji candlestick pattern on the daily charts on 15th May 2018, Nifty has now breached the crucial support of its 20-days and 50-days EMA, to close at 10,516 on Monday.
In the previous week, Nifty formed bearish Engulfing pattern on the weekly charts. This bearish pattern is now confirmed, as Nifty witnessed a follow-up selling during the first session of this week.
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The relative strength index or the RSI oscillator has formed a negative divergence and has reached below the benchmark level of 50 on the daily charts of Nifty, indicating a negative trend.
MACD indicator has shown negative crossover on the daily charts. The Nifty has also closed below the previous bottom on the daily chart.
The next support for the Nifty is seen at 10,440 and 10,325, which happens to be 50 percent and 61.8percent retracements of the entire upswing seen from 9,951 (23rd Mar 2018 bottom) and 10,929 (15th May 2018 Top).
From the Derivative perspective:
During the last week, long unwinding is seen in the Nifty and Bank Nifty Futures where Open Interest in the Nifty and Bank Nifty fell by 2 percent and 9 percent with Nifty and Bank Nifty falling by 2 percent each.
The Nifty open interest Put call ratio (PCR) has fallen to 1.30 levels from 1.66 levels seen a few days back. This fall in the Nifty Open Interest Put call ratio is largely on the back of Call writing at 10,600-10,700 level.
On the higher side, Nifty is likely to find immediate support in the vicinity of 10,450-10,500 level, where Puts have been written earlier.
Foreign institutional investors (FIIs) created fresh shorts in the Index Futures segment during the last week, where they net sold contracts worth Rs 1,240 crore with open interest going up by 38,675 contracts.
In the Stock Futures segment too, FII created fresh short positions in the stock Futures segment where they net sold contracts worth Rs 908 crore with open interest going up by 48,987 contracts.
In the Option segment too, FIIs net bought 41,840 contracts of Index Puts and sold 13,281 contracts of the Index Calls, suggesting they are creating bearish positions in the Index Option segment too.
Considering the technical and derivative evidence discussed above, we believe that the trend of the Nifty has turned bearish for the short term.
We advise traders to remain short and utilize any pullback in Nifty to create fresh short positions. The ideal range of shorting Nifty would be 10,550-10,600. Targets for the Nifty short are seen at 10,440 and 10,325 and keeping a stop loss above 10,700 on a closing basis.
Here is a list of top three stocks which could give up to 9.5% return in the short term:
Wipro: Sell| Target: Rs 245 | Stop-loss: Rs 280 | Return 7.5%
Despite being a part of the IT sector which is clearly outperforming in the current market scenario, Wipro has failed to perform and is weakening further on the charts.
On the weekly charts, the stock has confirmed a breakdown from the bearish head and shoulder pattern. The stock is currently trading below its 50, 100 and 200-DMA, indicating a bearish trend on all time frames.
The stock price has been forming lower tops and lower bottoms on the daily charts. We recommend selling Wipro for the downside target of Rs 245, and keeping a stop loss above Rs 280.
Apollo Hospitals: Sell| Target: Rs 890 | Stop-loss: Rs 1,050 | Return 9.5%
The pharma and healthcare sector has been underperforming for the last 3 years and the Nifty Pharma index has reached its new 52-week low recently.
Apollo Hospitals has also been showing weakness on the short to medium term charts. On the weekly charts, the stock has confirmed breakdown from its bearish head and shoulder pattern.
The stock is currently trading below 50, 100 and 200-DMA, indicating a bearish trend on all time frames. Oscillators like RSI, MACD, and DMI have been showing weakness on the charts.
We recommend selling Apollo Hospitals for the downside target of Rs 890, and keeping a stop loss above Rs 1,050.
Bharti Airtel: Sell| Target: Rs335 | Stop-loss: Rs 380 | Return 7%
Telecom sector has been struggling for the last many years and the underperformance is likely to continue in the coming times also.
The stock price has recently breached the crucial support of double bottom placed at Rs 375 on the daily charts. On the weekly charts, the stock has confirmed breakdown from the bearish head and shoulder pattern.
The stock is currently trading below 50, 100 and 200-DMA, indicating a bearish trend on all time frames. Bearish Death crossover setup was witnessed recently on the charts, as 50 and 100 DMA reached below 200-DMA.
Oscillators like RSI, MACD, and DMI have been showing weakness on the charts. We recommend selling Bharti Airtel for the downside target of 335 and keeping a stop loss above Rs 380.
Disclaimer: The author is Technical Analyst, PCG Desk, HDFC Securities. 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.