Midcaps stocks likely to outperform Nifty! 3 stocks which could give up to 17% returns in 1-6 months

The sharp up move in the last three sessions from the support area has seen the index almost testing their embarked target of 11,600.

  

The Nifty continued its record-setting spree as it formed an all-time high of 11,581 on Tuesday. The entire up move in the index since July 2018 low (10,604) has been well-channeled signalling sustained demand at elevated levels.

The index, on expected lines, rebounded during the previous week taking support at the lower band of the rising channel placed around 11,350-levels. The sharp up move in the last three sessions from the support area has seen the index almost testing their embarked target of 11,600.

The sharp up move in the last three sessions has seen the daily stochastic oscillator to enter overbought territory with reading of 93.

We expect the market to consolidate around the major resistance area of 11,600 weeks is the confluence of:

a) 138.2% external retracement of the entire decline of February-March 2018 (11,171-9,951) is placed at 11,637

b) price parity of April-May 2018 up move (9951-10929) in percentage terms as measured from June 2018 low of 10,550, at 11,595

Going ahead, we expect Nifty midcap to outperform the benchmark index as on expected lines, Nifty midcap index opened with a positive gap and maintained the higher high–low formation, indicating follow through the strength of last two week’s consolidation breakout.

As discussed earlier, the breakout confirmation of a falling wedge pattern suggests structural improvement in turn signifying acceleration of upward momentum.

This would help the Nifty midcap index to actualise the next leg of the rally (around 7-10%) as it coincides with an implicated target of falling wedge pattern at 20320 (18960-17600=1360).

Hence, one should accumulate quality midcap stocks as we expect the midcap index to remain in the limelight for the next couple of weeks.

Structurally, since the end of May 2018, Nifty rallies are getting elongated with shallow price correction supported by strong market breadth, signifying the inherent strength of the market.

This overall structural improvement makes us confident of upgrading support zone at 11340 as it is a confluence of:

a) 38.2% retracement of recent up move (10935–11565) at 11325

b) past two week’s consolidation low at 11340

Here is a list of top three stocks which could give 10-17% return in the next 1-6 months:

ITC: Buy| CMP: Rs 313| Target: Rs 345| Stop Loss: Rs 294| Return 10%| Timeframe 6 months

The share price of ITC has generated a resolute breakout above the rectangle pattern, thereby confirming a strong base formation around 250, in turn resulting in a resumption of the primary uptrend.

Currently, the stock is consolidating at higher levels to work off the excess formed during the last month’s sharp up move. We believe that the recent price activity signals a continuance of ongoing primary up trend thereby offering a fresh entry opportunity for the medium-term investors.

During July 2018, the stock witnessed a strong rally gaining from Rs 260 to Rs 307 level. In the process, it gave a breakout from the past one year’s consolidation.

After a strong breakout rally, the share price is seen taking a breather over the past three weeks. The temporary pause after a sharp rally has helped the share price to cool off the overbought conditions and in the process built a higher base, which would now act as a launch pad for the next leg of the rally.

This overall price action has taken a shape of a bullish Flag formation. A resolute breakout from the bullish Flag pattern during the current week suggests a continuance of the recent uptrend after the conclusion of the temporary breather that provides a fresh entry opportunity with a favourable risk-reward

We believe that the stock has a strong base around Rs 295 levels as it is the breakout area of the last one-year consolidation that also coinciding with bullish gap area of 27th July 2018 placed around Rs 295 levels.

The overall price development makes us believe the stock is set to resolve higher towards our target of Rs 345 being the 80% retracement level of the entire secondary phase of correction (| 368-250), placed around Rs 344.

ABB: Buy| CMP: Rs 1271| Target: Rs 1490| Stop Loss: Rs 1,125| Return 17%| Timeframe 6 months

The share price has seen a multi-fold rally (430–1526) during mid-2013 to 2015. Since then, it has undergone a secondary phase of consolidation in the broader range of Rs 1650–930.

Over the past three months, the stock is seen consolidating above the long-term 200 weeks EMA, which is currently placed at Rs 1220.

We believe it has undergone a base building process that will act as a launch pad for the next leg of the up move towards (| 1490) in coming months and provides a good entry opportunity for medium term investors.

The entire secondary phase of consolidation has been captured in a well-defined rising channel formation, signifying elevated buying demand.

Currently, the stock has been forming a strong base after retracing 80% of the last leg of up move (1018-1749) at 1163 supported by heavy volumes, indicating the presence of strong buying demand around the key value area of Rs 1130.

In a nutshell, we believe that the stock is attractively placed and offers a favourable risk-reward setup for investors that bodes well to resolve higher form here on and gradually head towards 1490 as it is near 61.8% retracement level of the last corrective move (1749-1129), around Rs 1510.

Sanofi India: Buy| CMP: Rs 6149| Target: Rs 6995| Stop Loss: Rs 5710| Return 14%| Timeframe 6 month

The share price saw a major turnaround in March 2018 as it logged a resolute breakout from multi-year consolidation (3730–4940) during 2015-18.

Prices have been inching northward post retesting aforementioned breakout level (4720), suggesting renewed buying demand at elevated levels.

The recent price activity signals acceleration of upward momentum, providing a good entry opportunity to ride the next leg of the up move.

The stock has been forming higher peak and trough since September 2017. This overall price action has been captured in an upward sloping channel formation (drawn adjoining September 2017 to May 2018 lows of 3940-4720 and projected from January highs of 5151).

Recently, the stock registered a breakout from the upper band of aforementioned channel backed by rising volumes, indicating an acceleration of upward momentum.

Based on the aforementioned technical evidence, we expect the stock to resolve higher from here on and head towards 6995 over the medium term being the measuring implication of the aforementioned rising channel (6050-5100=950 points) added to the higher band of the channel 7000 (6050+950=7000) corroborating with 161.8% extension of up move (3086 to 4950) projected from 3940, placed around 6955.

MORE WILL UPDATE SOON!!