Last Updated on Jun 21, 2022 by

Kunal is a fund manager at The Streets, a private fund. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.

The market extended corrections, and many counters have corrected decently. Such brutal corrections end up making memes on “buy on the dip”, too. But I never miss out on an opportunity to figure out any good opportunity that offers the best risk-reward ratio. Herein, I share my technical view on one of the financial segment counters, which is not just the leader, but also a highly respected name in the industry, Bajaj Finance. Let’s go through all the observations on the counter based on different timeframes and understand risk-reward for longs. 

Monthly: Correction size

Since 2010, Bajfinance has seen multiple sizable corrections. Almost all corrections, except the 2020 correction, had a cut of approximately 36% from the high. The present correction also has a cut of approximately 37% so far, which is fetching our attention towards it. 

Weekly: Price action

From the extreme low of 2010, a trendline is plotted by connecting the bottom of 2020. The current price has just tested the same white trendline and paused. That zone is coinciding with a down trendline (yellow coloured one) which is also offering a support zone. The intermediate trendline is offered support/resistance (under a change in polarity concept) multiple times. That blue coloured trendline is also offering support to the price. 

Inflection zone is super strong due to 3 trendlines conjunction support. 

Weekly: Fibonacci Tool

On the weekly chart, the most recent advance spike is considered to compare the correction. The correction has so far reached 78.6% retracement, and the final candle is of the long lower wick. 78.6% is just coinciding with the trendline conjunction explained in the previous chart. That’s the cherry on the cake. 

Weekly: RSI

Very clearly, RSI is showing weakness in price. But the trend remains intact on the weekly charts. This is creating a perfect “Hidden bullish divergence”. As price is just onto support, this set-up is offering the best buying opportunity as per the technical concept. 

Monthly: Supertrend

Supertrend is a strong trending indicator. Being trending, it is also a lagging indicator. The indicator has also offered continuous support on the monthly chart since 2010. Presently prices have just tested the same support zone offered by the indicator, which seems to be a screaming buy situation (based on previous events). 

Daily: Price action + RSI

Shouldn’t be discussing much on the extreme lower timeframe, but on the daily chart, the stock seems to be forming a falling wedge, which is a bullish formation. Additionally, RSI went below the 30 zones (oversold zone) and recovered by making a higher bottom when the price is still a lower bottom, confirming bullish divergence. Falling wedge + bullish RSI divergence is making the counter even for short-term trading. 

Daily: Bollinger Band

The falling wedge formation has a bullish piercing candle which is also outside inside plotting for the Bollinger band. As per Bollinger band set up, after outside inside plotting, price is expected to retrace till mid-level of Bollinger. The midline of Bollinger is coinciding with the falling wedge resistance line too. One should keep a closer watch on the counter for multiple trading opportunities, even on a lower time frame chart. 

Ratio chart: Bajaj finance v/s Nifty Financial

On the weekly ratio chart of the counter and index, we can see a clear uptrend for a long time. The recent decline has reached the previous breakout zone, which seems to be offering support, too (under a change in polarity). Also, the declining trendline is offering support at the same level, which is creating an inflection zone. The last candle is a perfect hammer formation, opening up the possibility of outperformance of Bajaj finance among its peers. 

Ratio chart: Bajaj finance v/s Nifty

Since 2010, there has been clear outperformance of Bajaj finance over the Nifty index. Off lately, the slope of the chart has turned steeper, making it a strong counter. The recent decline of the chart has pushed the ratio on the support offered by two trendlines. The outperformance of Bajaj finance from the present levels can’t be ruled out due to the 12 yrs old support trendline. 

Option Data

This is the option chain as of Friday (17 June 2022) closing. Very clearly, open interest is decreasing for Call strikes between 5600 to 6200. At the same time, ‘Put’ open interest is increasing for strikes between 5400 to 5100. Data are very clearly suggesting bullish sentiments building up slowly and steadily. 

Putting it all together

Looking at a correction of approximately 36% from the top, the price reaching near three trend lines supports the conjunction point. Fibonacci 78.6% retracement support at the same zone, hidden bullish RSI divergence on the weekly chart. Monthly super trend support, falling wedge wish bullish RSI Divergence & Bollinger band mean reversion on the daily chart. All are suggesting the best time to watch out for Bajaj Finance from a short to mid-term perspective. Ratio charts of Bajaj finance with Nifty and Nifty financial are also showing pause during market decline and potential trend reversal from the present zone, confirming outperformance of Bajaj finance likely in the coming time. 

Statutory Disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open at the counter. Prefer to take the advice of your financial advisor before initiating any position. 

Kunal Rambhia
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