Trading ideas: Stock recommendations for next week

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Once again, the domestic equity markets displayed scepticism during the week gone by. However, the benchmark NSE Nifty index managed to sustain above the important support of 15,600 on a closing basis. The index made a new high in June but failed to sustain at higher levels and now it has confirmed a clear breakdown.

The index registered a new life high above 15,900 and then even took a dip towards 15,450 but eventually closed the month marginally in green with a gain of around 0.90%. Now, if we look at the technical target then the consolidation breakout above 15,400 has the potential to bring the index near 16,200–16,400 going ahead. However, that could be the buying climax for the markets because there are some red flags that we are observing.

The derivative figures indicate that retail participation is highest in stock futures in comparison to the past few years. They have net over 9.5 lakh contracts longs in the stock futures and that seems to be a bit heavy. This indicates some kind of over-optimism. Secondly, the Nifty 500 index is stuck at the larger degree trend line resistance at the 13,700 mark. This resistance coincides with the 200% retracement of its previous move.

The above point dictates that we are reaching an exhaustion point for broader markets. On the contrary, if Nifty slides further from here on then in that case 15,400 would be decisive support and a breach of the same would drag the index towards the 15,000 level. That could again be a buying opportunity. Overall, we are bullish on a larger perspective but we expect a corrective move in the market.

We advise short term traders to stay extremely selective while picking up long bets and remain vigilant in case of any ambiguity going further. Investors should wait for a significant dip to create fresh longs. The Nifty Bank index (down 2%) has again disappointed the street by underperforming the benchmark indices last month. Unless and until we don’t get participation by the financials it would be difficult for the markets to rise higher. Only if the index sustains above the 35,000 mark then it could possibly travel towards lifetime highs of 37,700 and also thereafter to the 40,000 mark. On the downside 33,900 could be a major decisive support for the coming weeks. A breach of the same might result in strong selling pressure in the banking space which could drag the index towards 33,000-32,000 in July 2021.

Here are two stock recommendations for next week:

Blue Star | Buy | Stop loss: Rs 805 | Target price: Rs 880 The stock has been consolidating in a small range for quite some time and has finally managed to break out of that range. We expect white goods stocks to do well in the coming weeks.

Biocon | Buy | Stop loss: Rs 400 | Target price: Rs 426 The stock is on the verge of a trend line breakout which will get confirmed above Rs 411. A move above the same might bring in some momentum in the stock as this is the only pharma name that is yet to move higher.

(The writer is AVP, technical research at Anand Rathi. Views expressed are personal)