Technical Strategy - ICICI Directcontent.icicidirect.com/mailimages/IDirect_Technical... · 2019-09-27 · Strong up move from crucial support threshold augurs well to resolve out

Research Analysts

Dharmesh Shah

[email protected]

Pabitro Mukherjee

[email protected]

Nitin Kunte, CMT

[email protected]

Vinayak Parmar

[email protected]

Ninad Tamhanekar, CMT

[email protected]

Technical Strategy

Rally on track, time to board for 13100…

September 2019

September 27, 2019

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Rally on track, time to board for 13100…

September 27, 2019 ICICI Securities Ltd. | Retail Equity Research 2

Indian equities gave a thunderous applause to key measures announced by the

government in the form of corporate tax cuts, as much awaited intervention to deal with

slowdown concerns reignited animal spirits that are well reflected in the performance of

domestic equities over the past two sessions (Nifty up ~10%).

This note intends to provide an answer to the key question in investor’s mind; “Is this the

beginning of a new bull market? Or a bear market rally?”.

Going ahead, we expect the Nifty to continue its ascent to 13100 levels in CY20, as

guided by our bottom up model and conventional chart work.

• Empirical evidence depicts that corrections of the magnitude of average 14% from life-

time highs, have provided long term buying opportunity, delivering double digit

returns (average 24%). In the current context, the Nifty made a V-shaped recovery

after 12% correction from the all-time high (12108) and is expected to continue its

rhythm thereby projecting target @ 13100 levels. This also coincides with classical

technical evidence of price parity of last up move (10005-12103), projected from

August low 10637, placed at 12900

• This is further corroborated by our bottom-up model exhibiting bullish undertone for

constituents with 87% weightage, projecting upside of 13100 levels

• We expect the Midcap index to rally around 22% over 12 months, as classical chart

work depicts maturity of price/time correction

• We do not foresee any major shift in the current directional positive bias. Therefore,

any correction towards 11200-11300 should be used as an incremental opportunity to

construct a portfolio of quality stocks

Technical Outlook

Technic

al S

trategy –

2019

Source: Bloomberg, ICICI Direct Research

Gladiator Technical Picks (6 months)

Cyclicals to drive

Support @

10600

Target @ 13100

12103

10005

6825

9119

4531

6338

Nifty : Monthly bar chart

Empirically, 14% correction in Nifty has set the

stage for double digit rally….

Scrip I-Direct Code Buying Range Target Stop-loss Upside(%)

HDFC HDFC 2150-2175 2370 2010 10

Pidilite Industries PIDIND 1430-1450 1680 1330 17

KEC KECIN 270-285 334 248 19

BEML BEML 910-930 1080 820 17

Phoenix Mills PHOMIL 690-715 845 635 19

Sector Stocks that we like

BFSI Axis Bank, SBI, Kotak Bank, Bajaj Finserv

Capital goods L&T, Kalpataru Power, Timken

Consumption Kansai Nerolac, Voltas, Titan, PVR

Infrastructure Ultratech, JK Lakshmi, NCC

Auto M&M, Hero Motocorp, Bharat Forge

PSU BPCL, Concor, BEL, Mishra Dhatu Nigam

Others Balrampur Chini, Indian Hotels, Dr Lal Pathlab, RNAM

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Cyclicals to deliver double digit gains in second half…

Historically, in H2 of election year, cyclicals have

clocked double digit gains. We expect similar

performance in H2 2019

We expect BFSI, capital

goods, consumption and infra

to outperform in coming

months

September 27, 2019 ICICI Securities Ltd. | Retail Equity ResearchSource: Bloomberg, ICICI Direct Research

2Click here to go to top

2019

5 Months Pre -

Election

7 Months Post -

Election

5 Months Pre -

Election

7 Months Post -

Election

5 Months Pre -

Election

7 Months Post -

Election

5 Months Pre -

Election

Index Nifty -8 22 26 43 13 15 8

Index Nifty 500 -6 26 23 53 14 21 5

Cyclical Auto & Components -12 45 16 120 28 80 -12

Cyclical BFSI 0 46 5 70 20 43 -2

Cyclical Capital Goods -12 67 6 89 23 44 -3

Cyclical Cement -2 67 10 69 33 53 14

Cyclical Construction and Infra -8 63 37 112 38 28 0

Cyclical Energy -11 36 52 58 22 14 -2

Cyclical Metals -25 77 34 123 17 -1 3

Cyclical Power -14 52 37 45 13 16 -2

Defensive Consumer discretionary -20 83 -5 106 20 36 2

Defensive FMCG -5 51 38 82 7 27 -14

Defensive IT -27 55 9 119 8 34 -4

Defensive Pharmaceuticals 1 39 28 89 11 31 -7

Sectoral Election Year Trend (Returns in %) Universe: Nifty 500

Sector's Nature

20142004 2009

Sectors

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September 27, 2019 ICICI Securities Ltd. | Retail Equity Research 4Source: ICICI Direct Research

Nifty @ 13100, reiterated via bottom up way…-------- P

otentia

l R

eturns (

%) --------

-5

-10

-15

-20

0

5

10

15

20

25

30

35

40

1 2 4 5

-------- Technical Ranking --------

3

Returns RankingReturns Ranking

Returns Ranking RankingReturns

Bargain Buy

Axis Bank, BPCL,

Britannia, HDFC, ITC,

SBI, Ultratech, M&M

Outperformers

Asian Paints, Bajaj

Finance, HDFC Bank,

L&T, Titan,

Market Performers

HUL, Hero MotoCorp

Infosys, Maruti, TCS,

Tata Steel

Underperformers

Cipla, Gail, PowerGrid,

Yes Bank, Zee

Bottom up prognosis indicates bullish undertone

for constituents carrying 87% weightage

Turnaround: Attempting major breakouts after elongated

period of underperformance, thereby pricing in all negatives

Outperformer: Reflects structural uptrend and likely to

outperform. Corrections to offer incremental investment

opportunity

Market Performers: Offers favourable risk-reward, likely to

perform in tandem with benchmarks

Underperformers: Likely to extend price/time correction and

remain laggards based on technical set-up

* Ranking improves from 1 to 5

Click here to go to top

CategoryNo. of

Stocks

Aggregate

Weightage

Projected

Returns

Contribution to

Nifty (points)

Nifty Target 13,129

Bargain Buy

Underperformer 11 7.9 8% 737

Market

Performer

21 47.8 15% 8,567

3,235

7 9.9 20% 590

Outperformer 11 34.5 24%

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September 27, 2019 ICICI Securities Ltd. | Retail Equity Research 5Source: Bloomberg, ICICI Direct Research

Empirically, 14% correction in Nifty has set the stage for over 20% gains….

Major long term support area around 10600

Upward sloping trend line adjoining

major lows since 2018

Double bottom at 10640

61.8% retracement of the CY18-19 rally

Support @

10600

Nifty: Monthly bar chart

Election year index return

Empirical evidence

depicts average gains

of 24% post major

average correction of

14% since 2009

Conventional chart

method remarkably

corroborates the

path projected by

the bottom-up

model


32%

16%24%

28%

24%

31%

28%

18%21%

From To

Jun'09 Jul'09 17 32

Jan'10 May'10 12 16

Nov'10 Dec'11 29 24

Feb'12 May'12 15 28

May'13 Aug'13 18 24

Mar'15 Feb'16 25 31

Sep'16 Dec'16 12 28

Jan'18 Mar'18 11 18

Sep'18 Oct'18 15 21

Jun'19 Aug'19 12

14% 24%

Average Excluding 2010

and 2015

Correction

(%)

Time Subsequent

rally (%)

Our earmarked target of 13100 is based on :

Long term upward sloping trend is placed around 13100

Price parity of last up move (10005-12103), projected from

August low 10637, placed at 12900

Empirical evidences depicts average gains of 24% post major

average correction of 14% since 2009, projects 13180

Target @ 13100

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Bank Nifty to lead momentum; head towards 35000

20907

8367

13408

Sharp rebound from long term

trend line supports joining lows

since CY13 after correcting

16%. Thus, it maintained the

rhythm as previous three

decline are in range of 14-16%

Target @ 35000

17607

52%

Monthly bar chart

Correction & subsequent

rallies of last three years

In past three instances,

corrections of about 15%

have sown seeds for double

digit rally, averaging above

30% . Similar magnitude

from September 2019 low

(26560) projects upside

towards 35000 levels

Bank Nifty to lead rally and

head towards 35000 as it is

confluence of:

- 161.8% external retracement

of previous decline

- price parity with rally of

August 2018


30%

23606

24240

20575

27652

26560

Year Correction Subsequent Rally

Sep-16 15% 52%

Jan-18 15% 18%

Aug-18 14% 30%

Average 33%

31783

Monthly 14 periods RSI taking support at its CY18 lows

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Price, time maturity augur well for next leg of up move to unfold…

Major long term support area around 15000

Lower band of downward sloping

channel, placed at 15150

61.8% retracement of 2016-18 rally

(11190-21814), placed at 15260

Support @

15000

Nifty Midcap 100 - Monthly bar chart

Healthy correction as

over past 21 months

it retraced 61.8% of

preceding 22 months

up move…

Nifty midcap index

anchored corrective

phase in 21st month.

In technical parlance,

’Number 21’ is

significant as it is

derived from

Fibonacci number

sequence


21841

Strong up move from crucial support threshold

augurs well to resolve out of falling channel.

Hence, this offers fresh entry opportunity for

potential target of 22%

14975

11190

6330

14 period RSI is poised to record a bullish crossover from its nine period average, indicating positive bias

Target @

20500

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500

1500

2500

3500

4500

5500

6500

7500

8500

9500

10500

0

10

20

30

40

50

60

70

80

90

100

1/3/2005 1/3/2006 1/3/2007 1/3/2008 1/3/2009 1/3/2010 1/3/2011 1/3/2012 1/3/2013 1/3/2014 1/3/2015 1/3/2016 1/3/2017 1/3/2018 1/3/2019

Market Breadth

% Stocks above 200 DMA Nifty 500

-500

-300

-100

100

300

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

CNX 500: Net Breadth (Advance - Decline)

Net Breadth


Market breadth at bearish extreme; panic to offer buying opportunity

% of stocks above 200 DMA dropping below 20 coincides with market bottom

Net advance - decline below -350 signifies sentiment approaching at its bearish extreme, offers favourable entry points….

Universe: Nifty 500

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o The sharp up move in last two sessions from the support area of | 1960-2020 has seen the stock registering a breakout above the falling channel

containing the entire previous two months decline (| 2357- 1960) signalling strength and resumption of primary up trend

o The stock has seen a change of polarity as previous trend line resistance has reversed its role and acting as support

o We expect the share price to resolve higher and head towards | 2370 in coming months as it is the confluence of the previous all time high and price

parity of the previous up move (|1918-2357) as projected from recent low of | 1960 signals upside towards | 2370 levels

Price parity with previous

up move @ 2370

1183

1645

1012

HDFC (HDFC): Change in polarity as previous trend line resistance acting as support…

Weekly Bar Chart

1960

Weekly 14 periods RSI has generated a bullish crossover thus validates positive bias in the stock

1464

2052

52 Weeks EMA

Initiated on i-click to gain on 23rd

September 2019 at 13:01 hours

Rec. Price 2150.00-2175.00 Target 2370.00 Stop loss 2010.00 Upside 10% Time Frame 6 Months

A falling channel breakout signals resumption of primary up trend and offers

fresh entry opportunity

A change of polarity as previous

trend line resistance has reversed

its role and acting as support


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o The stock is in a secular uptrend as it continue to form a higher peak and higher trough on all time frame. The last three year’s up move is well channelled

signalling sustained buying demand at elevated levels. The stock has recently seen an acceleration in the up move as it has registered a breakout above

the rising channel signals strength and offers fresh entry opportunity

o We expect the stock to continue with its positive momentum and test | 1680 in medium term as it is the 123.6% extension of the previous up move from (|

895 to 1312) as projected from the July 2019 low of 1168 signals upside towards | 1680

123.6% extension @ 1680

769

1168

1312

Pidilite Industries (PIDIND): Likely to accelerate secular up move…

Monthly Bar Chart

1195

Monthly 14 periods RSI has recently generated a bullish crossover signals continuation of up trend

568

895




A rising channel breakout suggests acceleration in the up move and

offers fresh entry opportunity

Major support at | 1330 as it is 50%

retracement of last three months up

move (|1168 to 1493)

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o The stock has formed potential double bottom at the 61.8% retracement of the November 2016 to April 2018 up move (| 110 to | 443) signalling a reversal of

the corrective trend and offering a fresh entry opportunity

o The up move during CY17 was on the back of strong volume of almost 1.5 times of the 12 months average volume of 1.7 crore per months whereas the

correction during CY18 and CY 19 was accompanied by very thin volume suggesting larger participation in the direction of the trend

o We expect the stock to maintain its positive bias and head towards | 334 levels in coming months as it is 50% retracement of the entire decline (| 443 to 230)

50% retracement

of entire decline

@ 334

148

341

110

KEC International (KECIN): Potential double bottom at major value area…

Monthly Bar Chart 443

Monthly 14 periods RSI is taking support at its

previous major low

182


Potential double bottom at major support area signals reversal of the

corrective trend and offers entry opportunity

Potential double bottom at

61.8% retracement @230

High volume during price rise and low volume during correction

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o The stock has registered a breakout above the 24 months downward sloping trendline and has moved above its 52 weeks EMA (| 883) signalling a reversal

of the corrective trend and offers a fresh entry opportunity to ride the next up move in the stock

o We expect the recent corrective decline to have approached maturity. The stock is likely to resolve higher from here on and head towards | 1080 in

medium term as it is the 123.6% external retracement of the previous major decline (| 1019-698)

123.6% external

retracement @ 1080

1019

1612

771

BEML (BEML): Corrective phase approaches maturity…

Monthly Bar Chart1947

Monthly MACD giving buy signal

698

521




A downward sloping trendline breakout suggests a reversal

of the corrective trend and offers fresh entry opportunity

Higher bottom formation

after the sharp decline of

last two years

High volume during base formation signals larger participation at support area

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o A breakout above 16 months consolidation range of | 700-550 suggests a structural change providing fresh entry opportunity to ride the next up move in the

stock towards | 850 levels being the measuring implication of the range breakout (770-550=150 points) added to the breakout area of | 700 provides upside

towards | 850 (700+150=850)

o Major support base is placed at | 645 levels as it is the confluence of the trend line support joining major lows since CY16 and the 61.8% retracement of the

previous up move (| 550 to 767) placed at | 645 levels

Measuring implication of

range breakout @ 850

239

550

700

Phoenix Mills (PHOMIL): Structural turnaround as breakout above 16 months consolidation…

Monthly Bar Chart

408

Monthly 14 periods RSI is sustaining above its nine periods average signals strength in current up move182


A breakout above 16 months consolidation range (| 700-550) signals structural turnaround

and offers fresh entry opportunity

Major support base is placed at | 645

levels as it is the confluence of:

- Trendline support joining lows since

CY 2016

- 61.8% retracement of previous rally (|

550 to 767)

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Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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We /I, Dharmesh Shah, Nitin Kunte, Ninad Tamhanekar, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the

subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts are not registered as research analysts by FINRA and are not associated

persons of the ICICI Securities Inc. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee

of the companies mentioned in the report.

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companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

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Technical Strategy - ICICI Directcontent.icicidirect.com/mailimages/IDirect_Technical... · 2019-09-27 · Strong up move from crucial support threshold augurs well to resolve out