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Indian headline indices were trading in deep red on Friday amid selling pressure in the bank, auto, IT, and energy stocks. While the S&P BSE Sensex fell by over 500 points or 0.67% and traded at 72,607.51, the broader Nifty slipped below the 22,000 mark. At 10:45 am, the 50-stock index was trading at 21,966.35, lower by 180.30 points or 0.81%.

Decoding the derivatives data ahead of the opening, Anand James, Chief Market Strategist, Geojit Financial Services said that the highest open interest for Nifty was seen at 22,150 for CALLs and 22,100 for PUTs while monthly contracts have the highest open interest at 23,000 for CALLs and 21,000 for PUTs. In his view, a slip below 22,080 could now trigger a further downside. The highest new OI addition was seen at 22,150 for CALLs and 22,100 for PUTs in the weekly and at 24,000 for CALLs and 22,200 for PUTs in monthly contracts.

We spoke to analysts on how one should trade stocks that were in focus in the previous trading sessions based on derivative and technical data:

Analyst: Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, at SBI Securities told this to ETMarkets.

Consolidation breakout sparks optimism in Colgate Palmolive

On Thursday, the stock of Colgate Palmolive (India) Ltd gave a consolidation breakout. The breakout was supported by above 50-day average volume, which is a bullish sign. In addition, the stock has formed a sizeable bullish candle on breakout day, which adds strength to the breakout. The stock has recently outperformed frontline indices. It has also outshone Nifty FMCG by a decent margin. Currently, from its all-time high, Nifty FMCG is down by nearly 7%, and at the same time, the stock is trading at an all-time high. This shows strong outperformance. The Mansfield Relative Strength is quoting above zero line since the last 190 trading sessions, which shows sustained outperformance. As the stock is trading at an all-time high, all the moving averages and momentum-based indicators are suggesting bullish momentum in the stock. The daily RSI has sustained above the 60 mark for the first time after January 2024. The derivative data is also supporting the overall bullish chart structure. The March future has surged by 4.46% and open interest has dipped by nearly 1%. This indicates an overall short-covering rally. Examining the option chain, it’s notable that there is a concentration of CALL open interest at the 2700 strike, followed by 2800 strike, while considerable open interest on the PUT side is observed at the 2600 strike. Talking about option chains, from 2760 to 2660 CE strikes have witnessed CALL buying. While, on the PUT side, from 2700 to 2500 strikes have witnessed PUT writing. This clearly indicates bullish momentum in stock.

These technical and derivative factors are aligning in favour of bulls. Hence, we recommend accumulating the stock in the zone of Rs 2680-2660 with the stop loss of 2590. On the upside, it is likely to test the level of Rs 2810, followed by 2860 in the short-term.

HCL Technologies shows strength with double bottom breakout

The stock of HCL Technologies has marked high of Rs 1697 and thereafter it has slid into the period of consolidation. During the period of consolidation, the stock has formed Adam & Adam Double Bottom pattern near the crucial support zone. The support zone was defined by 34-day EMA and 61.8% Fibonacci retracement level of its prior upward rally (Rs 1551-Rs 1697).

On Thursday, the stock gave a neckline breakout of the Double Bottom pattern along with a relatively higher volume. In addition, the stock has formed sizeable bullish candle. Currently, the stock is trading above its short and long-term moving averages. These averages are in a rising trajectory and they are in the desired sequence. The daily RSI has surged above the 60 mark for the first time after a 13-trading session.

The derivative data aligns with the prevailing bullish chart structure. The March future has surged by nearly 3% and open interest has surged by nearly 3%. This indicates an overall long build-up.

There is a notable concentration of open interest at the 1700 strike, followed by the 1750 strike. While, significant open interest on the PUT side is observed at the 1600 strike. Talking about option chains, from 1690 to 1670 CE strikes have witnessed CALL buying. While, on the PUT side, from 1690 to 1560 strikes have witnessed PUT writing. This clearly indicates bullish momentum in the stock.

Hence, we recommend accumulating the stock in the zone of Rs 1680-1660 with the stop loss of Rs 1620 level. On the upside, it is likely to test the level of Rs 1750, followed by Rs 1790 in the short-term.

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