Nifty has been hovering around 22,000 for over two weeks forming an ascending triangle on the daily charts. This volatility contraction suggests the potential for a significant breakout in either direction with an up move more likely.

The market will get a direction once we get a range breakout. However, three stocks have formed a good setup on the technical charts and can give returns in the short term.

Analyst: Sheersham Gupta, Director and Senior Technical Analyst at Rupeezy

ABFRL – Rising Channel Breakout

ABFRL hit a high of 360 in November, after which it entered a downtrend, correcting approximately 50 percent. Since August last year, the stock has been trading in a rising channel forming higher highs and higher lows.

On Wednesday, the stock broke this channel with good volumes. The daily RSI, at 72, also supports this uptrend.

On the derivative front, the open interest (OI) for the current month’s future contracts has been increasing along with the price signaling a long buildup. At the strike prices below the At-the-Money (ATM) level, we observe a rise in the open interest (OI) for put options alongside a decrease in the OI for call options.Thus, ABFRL can be bought for a target of 290, keeping the stop loss at 248.

DR Reddy – Ascending Triangle Pattern Breakout

The level of 6000 was the all-time high that Dr. Reddy hit in August, before correcting about 15 percent. For the past two months, the stock has been forming higher highs and higher lows displaying volatility contraction.

Last week, the stock broke out of this ascending triangle with good volumes. After retesting, the stock reversed to continue the upmove, thereby confirming the breakout.

Option chain analysis for the stock shows the huge addition of put option contracts at the strike price of 6000. Further, the open interest for future contracts is increasing along with the stock price suggesting an upmove.

Thus, Dr Reddy can be bought for a target price of 6700 keeping the stop loss at 5790 on a closing basis.

Maruti – Cup and Handle Pattern Breakout

Maruti broke the crucial level of 10000 in September to hit a high of 10,920. Thereafter, the stock corrected to retest this level before continuing its uptrend.

On Wednesday, Maruti broke its all-time high level with good volumes. The daily RSI for the stock is 68 indicating momentum in the stock.

In the Maruti option chain, there’s a noticeable increase in the number of put contracts compared to call option contracts, indicating a market sentiment favoring bullish momentum in the stock.

Thus, it is recommended to buy Maruti for a target price of 12000. The stop loss will be placed at 10400 on a closing basis.

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