Trading ideas: Two stock recommendations for next week

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The month of August emerged as historical for the equity market as the benchmark index NSE Nifty index achieved two milestones. That is, the psychological levels of 16,000 in the first week of the month and 17,000 at the end of the month. The index rallied 8.69% in the last month. Select blue chip counters have contributed to the rally with IT and FMCG showing outperformance. It was a complete dominance of the bulls that even the slight correction in mid and small caps in between the series did not hamper the sentiment and the rally continued in such a manner that the corrected counters also reversed.

The strong fundamentals, quarterly earnings, and mostly because of the liquidity the bulls have taken over the equity market. On technical parameters, NSE Nifty is looking very strong on charts as any small correction in the past is taken up easily by the bulls. However, the market has been trading at an overbought zone which could be depicted from the derivative data, where the PCR is consistently placed at a higher zone.

Even the index is stuck near to the upper band of the Bollinger (20, 2) since the breakout at the milestone of 16,000 followed by the 14 period (weekly) RSI which is nearing the previous swing high of 79 odd zone where the index got stuck in a consolidating phase.

Hence, looking at the early sign of consolidation, it is advisable to stay cautious at higher levels. As per derivative data, the immediate support is pegged around the 17,000-mark followed by 16,500, while on the higher side 17,500 could be seen as immediate hurdle breaching which is a decisive manner could trigger another set of rally in the September month series.

Attention should also be given to India VIX that is consolidating near the support zone of 12 odd levels and is in the formation of rounding bottom in the daily time frame. Even on the weekly time frame the 14 period RSI has made a positive crossover near the oversold region indicating a cautious approach in the market. Hence, it is advisable to stay extremely selective while picking up stocks and always book considerable profits in the current market scenario. On the other hand, Bank Nifty has moved in line with the broader index in the last expiry as it gained over 5.32% on the month on month basis. On the weekly chart, the index has witnessed a strong bullish candlestick pattern and settled above the mean of the Bollinger band (20, 2). The index has also breached the sloping trend-line and is all set to surge high in the coming future. However, the confirmation is pending for the index to move upwards, till the coming week witnesses a follow-up buying. Till the time the participation of BFSI is not made decisively, it would be difficult for the markets to surge higher. Only if the index sustains above the 36,500-mark then it could possibly travel towards lifetime highs of 37,700 and also towards the 40,000-mark, while on the downside 34,000 could be a major decisive support zone.

Stock recommendations: Cochin Shipyard | Buy | Stop loss: Rs 350 | Target price: Rs 383 Finally, a range breakout was witnessed in the stock from the oversold terrain on a daily scale. This indicates a fresh pullback going ahead.

MRPL | Buy | Stop loss: Rs 41.50 | Target price: Rs 47 The stock has been resting on a 200-DEMA after a corrective move. This indicates strength. There is a possibility that the stock might start with a new upside from here on.

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