Two stocks to buy for near term gains while Nifty trades in overbought territory

December 10, 2020 8:26 AM

While the long term uptrend is intact and long term momentum readings are not overbought, the short term momentum readings like the 14-day RSI have entered overbought territory.

Moreover, India is now way more expensive than its historical valuation with the Nifty currently trading at a shade under 20 times estimated FY22 earnings.On the daily chart, we can observe that the 20-day SMA has moved up over the last few weeks and is currently at 13003. This also coincides with a trend line support. We therefore expect any corrections to find support around this area.

By Subash Gangadharan

The Nifty has been continuously moving higher almost for six weeks after finding support at the 50-day SMA. The Nifty also remains above the 20 day SMA. While the long term uptrend is intact and long term momentum readings are not overbought, the short term momentum readings like the 14-day RSI have entered overbought territory as it is currently at 78.93. Also the rise seen in the last two weeks has almost been vertical.

A cautious approach is therefore warranted especially for short term trading positions. Strict stop losses need to be kept to control risk.

On the daily chart, we can observe that the 20-day SMA has moved up over the last few weeks and is currently at 13003. This also coincides with a trend line support. We therefore expect any corrections to find support around this area.

Buy Karur Vysya Bank

Target price: Rs 60

Karur Vysya Bank has shown a lot of relative strength of late. While the Nifty rose by 2.06% this week, Karur Vysya Bank has surged by 18.54% over the same time period.

On the weekly charts, the stock has broken out of a 3 week trading range on the back of above average volumes. In the process, the stock has also taken out its previous intermediate highs of 42.7. This augurs well for the uptrend to continue.

Technical indicators too are giving positive signals as the stock trades above the 20-day and 50-day SMA. Intermediate momentum readings like the 14-week RSI too are in rising mode and not overbought.

We believe the stock is ready to continue the next leg of its underlying uptrend and has the potential to move higher in the coming weeks. We therefore recommend a Buy between the 43-45 levels. CMP is 44.75. Stop loss is at 38 while targets are at 60.

Buy PVR

Target price: Rs 1,860

PVR has been steadily climbing higher for the last few months making higher tops and higher bottoms. This week, the stock crossed its recent intermediate highs of 1469 on the back of huge volumes. This augurs well for the uptrend to continue.

Technical indicators are giving positive signals as the stock trades above the 20-day and 50-day SMA. Intermediate momentum readings like the 14-week RSI too are in rising mode and not overbought.

With the intermediate and long term technical setups looking positive, we believe the stock is ready to continue the next leg of its underlying uptrend and has the potential to move higher in the coming weeks. We therefore recommend a Buy between the 1460-1500 levels. CMP is 1494. Stop loss is at 1320 while targets are at 1860.

(Subash Gangadharan is a Senior Technical and Derivative Analyst at HDFC Securities. The views expressed are the author’s own. Please consult your financial advisor before investing.)

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