Market is flirting with the new life high & as on Friday 7th July 2017, it closed at a striking distance from 9700. On a weekly basis, we see the first rise after three consecutive lower closes. This appears to be a resumption of primary uptrend, provided 9540 holds in Cash Nifty.
Lots of stocks are indeed trading at their lifetime highs, valuation wise they are definitely not cheap. Even within the same sector like 4-wheeler Auto, there are stark differences among various scrips, for example, Maruti is continuously taking out new life highs for the past several months & has given over 70% return in last 1 year, whereas Tata Motors is languishing near to its 52-week low, giving virtually no returns during the same period. This implies one has to stay invested with the relative outperformers while weeding out the underperformers from the portfolio. This is a continuous process & concerns over valuations are irrelevant here.
This week, we turn our attention to a particular candlestick pattern called Hammer. It is a bullish reversal pattern & requires confirmation in the following session. The confirmation may come either in the form of higher opening than the previous session’s close or a long white body of the following session. We also need a previous downtrend to which the pattern will act as a reversal. The body of the candle identified as Hammer should at maximum be half of the lower shadow, smaller the better. An ideal Hammer should not have an upper shadow. Color of the Hammer body (white/black) is insignificant. A diagram of a Hammer & its bearish counterpart (Hanging Man) is shown in the exhibit 1.
Today, we select NMDC as our current week’s pick. Please take a look at Exhibit 2, it’s the Weekly Chart of NMDC.
As the chart in Exhibit 2 shows, NMDC, after a precipitous 30% drop from 150 odd levels in March 2017, has created a nearly perfect Hammer formation previous week & this week’s long white candle adds further credibility to the bullish reversal candle pattern. It closed at 115 regions last Friday. One could buy 50% of the total position at 114 regions, add the remaining 50% at 110, while keeping the final stop loss at 106 levels. An intermediate target of 130 is possible for NMDC in next few weeks.
To view chart click on: http://bit.ly/2u2yqJN
