By Mehul Kothari
Recently we have been quite upbeat about our view of a relief rally in the market before any further fall. In line with that the index NSE Nifty 50 managed to provide a recent recovery in the previous week. The reason for such a view on the markets was the derivative data. As per the participant wise open interest data; FIIs had heavy shorts in index futures in the previous week. Their Long to Short ratio of index futures was nearly 11% and the net short contracts were above 1 lakh. Historically, we have witnessed that such kind of oversold data is followed by a sharp bounce in the markets and in some instances we have seen bottoms being made from there. As a result we witnessed the much awaited bounce in the market. Now the Long Short ratio has reached back to 25% due to some fresh long position by the FIIs and also some short covering. This ratio has room till 50% to 60% on the upside and hence there is a possibility of further bounce in the coming weeks.
Nifty short term outlook
On the level’s front; the recent swing high of 15863 would be a crucial level to watch out for, on the upside. A daily close above the same would confirm that there is a possibility of an extended pullback in the market and in that scenario we could see Nifty heading towards 16200 mark. A weekly close above the same might confirm a short term bottom in the markets. On the other hand; if at all we witness some uncertainty in the market then 15200 would act as a make or break level. A daily close below the same might force the index to sneak below the 15000 mark and there could be further fall towards 14500.
Stocks to buy
1. Bajaj Finserv FUT above 12000 SL 11000 TGT 14000
Since Oct 2021; the stock Bajaj Finserv has corrected around 40% from the top of 19325. At this juncture; it is hovering near the 50% retracement of the entire rally which started from 2020 lows. On the derivative front; we are witnessing one of the highest built up since OCT 2020. The stock was consolidating at the time of this build up and that indicates the possibility of accumulation. The above mentioned rationale indicates that the stock is preparing for a relief rally or sharp reversal. Thus we advise traders to go long in BAJAJFINSV FUTURES above 12000 with a stop loss of 11000 for an upside target of 14000 in July F&O series.
2. BUY LTTS FUT near 3025 SL 2725 TGT 3600
Since Jan 2022; the stock LTTS has corrected more than 45% from the top of 5943. At this juncture; it is hovering near 3000 mark which has been the previous demand zone. On the weekly scale; the RSI (14) has sneaked below 30 mark and historically the stock has bounced from these levels (apart from year 2020). Even the daily RSI is displaying positive divergence. As per the derivative data; the stock has huge open interest which is the highest since the year 2021. The data along with technical indicators suggests that there is a possibility of short covering in the stock. Thus we advise traders to go long in LTTS FUTURES on dips near 3025 with a stop loss of 2725 for an upside target of 3600 in July F&O series.
(Mehul Kothari, AVP — Technical Research, Anand Rathi Shares & Stock Brokers. View expressed are the author’s own.)