NIFTY Index Chart Analysis

NIFTY Index Chart Analysis

Nifty consolidating in counter-trend

After 13 days of pre-budget rally of about 356 points or 3.07 per cent, the Nifty sharply fell about 520 points or 4.35 per cent in just three days and formed a lower low. Since then, the benchmark index is consolidating in a counter-trend fashion and forming flag pattern for the past five days. Generally, the flag consumes very little time in comparison to the other patterns and ends mostly at 38.6 to 61.8 per cent retracement levels. The 38.2 per cent retracement level is exactly at the flag resistance line at 11660. The interesting observation is that the flag is forming exactly according to the textbook rules, by forming higher highs and higher lows with decreasing volumes within the small range. The flag pattern forms on a sharp fall or a rise. This pattern is known as counter-trend continuation consolidation pattern. As we mentioned earlier, the budget acted as a trigger point for the bearish move. The large-caps joined the bear party by falling like a knife. We had also forecasted about filling up the May 20 gap. 

Exactly after filling 90 per cent of the gap, the Nifty is moving in a countertrend consolidation fashion. Generally, the reason for the gap-filling is the gaps will act as a potential support area. Nifty made a lifetime high on June 3 at 12,103, and has since then corrected about 642 points or 5.30 per cent in 25 trading sessions. In these 25 trading sessions, Nifty formed two lower lows and a lower high. The current ongoing counter-trend rally may form another lower high, probably at 11700-11806 zone. But the trend will reverse towards upside only above the budget day high of 11981. A close above this level means the rule of the downtrend will be nullified as the index closed above the prior swing high. The structure between 11981-11461 will be an interesting one as the countertrends will always be in a zigzag fashion. As long as the gap area is protected, the bears may take rest for the time being. The indicator set up is not very encouraging for the bulls. The RSI is clearly moving in a downward channel on the weekly chart and still trading at the historical support level of 40-45 zone on the daily chart. The MACD line is below the signal line for the second week and with the increasing histogram it is suggesting that the downward momentum is intact. The Nifty is also consuming more time to retrace. It consumed 6 days to retrace just 165 points from the July 9 bottom. This means the market is not in a mood for faster retracements. Only faster retracements can build confidence in the bulls. Let us wait for another 2-3 days or this weekend to get a confirmation for the endpoint of the counter-trend.The other factor like market breadth, institutional support and earnings are not so great as of now. The two IT majors declared their Q1FY20 financial results, which are in line with market expectations. As for the other major sector, namely, BFSI, companies have declared subdued results, including index stock such as IndusInd Bank.



This week, heavyweights like Reliance, M&M, Heromotocorp and HDFC Bank, will give a clear picture of the current quarter earnings. Any kind of weakness in overall earnings will take the market into the new lows, may be below the gap area.

STOCK RECOMMENDATIONS 

INFOSYS ............................... BUY .......................... CMP Rs.784.95 

BSE Code : 500209
Target 1 .... Rs. 840
Target 2 ..... Rs. 850
Stoploss....Rs. 735 (CLS) 



Technically, the stock closed at a new lifetime high with massive volumes. It has broken out of 23-week flat base pattern and trading above the long term moving averages. The 50-DMA clearly turned upside and well above the 200-DMA. The stock took support at 200-DMA several times in basing pattern. The MACD line is just above the signal on the weekly chart and above the zero line, which indicates the positive momentum. The MACD histogram also turned above the zero line. The RSI has broken out of a long triangle pattern and closed above the prior high. The indicator entered into a bullish zone with 62.09 on the weekly chart. The positive divergence in stochastic oscillator along with RSI confirms the upside breakout. The increase in volumes above the 20-week average in just one day shows that accumulation in large quantity happened on Monday. The directional index ADX is above the -DI and the +DI is above the -DI, indicating the strength in the breakout. Its price strength (RS) is at 83 and with the higher demand and a better master score, the stock is meeting all the CANSLIM criteria except EPS rating. As improving guidance and with EPS strength at 60 and return on equity at 23.7, the stock is looking strong fundamentally and technically. BUY this stock at Rs.784.95 with a stop loss of Rs.735. The target is Rs.840, followed by Rs.850 in the medium term. 

GSPL .................................... BUY .............................. CMP Rs.211.95 

BSE Code : 532702
Target 1 ..... Rs.240
Target 2 ..... Rs.250
Stoploss....Rs.190 (CLS)
 



Technically, the stock has broken out of 50-week cup formation with a 26 per cent depth. The breakout was with above-average volumes on July 15 and sustained for the second day. The stock is trading 4 per cent above the prior pivot level. At the same time, the stock is above 50-DMA. The 50-DMA is above 200-day and 100-day moving averages and turned upside. The RSI reached above the 60 level after Jan 2018 and is in the bullish zone on the weekly chart. The MACD histogram also increased for the past few weeks and is indicating the positive momentum in the stock. With a higher EPS strength (92) and price strength (RS) at 88 and 17 per cent return on equity, the stock looks attractive at the current level on a CANSLIM basis. BUY this stock at `211.95 with a stop loss of `190. The target is open towards `240-250. 

(Closing price as of July 16, 2019) 

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