NIFTY Index Chart Analysis
Earnings improvement to boost sentiments of market
The Indian stock market closed on a cautious note at the end of 2019. In the last one year, the benchmark index, Nifty gained over 12 per cent in the year but the broader market underperformed. The Smallcap-100 index lost about 9.53 per cent and the Midcap index lost 4.32 per cent. BFSI and Realty sectors are the outperformers and PSU Banks, Media, Metals, Pharma and auto sectors are the laggards in the past one year.
The Nifty formed a bull candle with small shadows like in 2010. The hanging man kind of pattern formation in half-yearly and monthly charts is indicating an utmost caution for the near-term. The divergence in all time frames and the weaker indicator set-up is a warning sign for the market. On the last day of the decade and the year, Nifty fell by 87 points and confirmed the prior day bearish candle. It also added a distribution day. Even on the weekly chart, after a Doji bar, it is in process of forming a bearish engulfing like pattern. As the last week’s low is very near, just another 50 points away, it better to be cautious on the long positions. Only in case of closing above the 12,295 levels, the uptrend will resume.
Before coming to a conclusion for an intermediate top, we will try to analyse the strength of the market with the help of Directional Movement Indicator (DMI) and the Average Directional Index (ADX). In this indicator, the +DMI for uptrend is indicated in the green line; and -DMI for downtrend is indicated in the red line. The blue line is the ADX that measures the strength of the trend irrespective of the direction. On the Nifty, daily chart price has been making higher highs and at the same time, the +DMI, green line, indicate the direction of the trend-making lower highs. This indicates upside momentum is weakening as evidenced by the divergence in higher highs on prices and corresponding lower highs on +DMI. At the same time, ADX is also diverging from higher highs in price, as it is making lower highs. Please check the lower peaks the blue line has been making. This is indicative of waning strength in the trend. The last peak is, in fact, below the threshold level of 25 indicating serious loss of trend strength.
The broader Nifty 500 index is also similarly poised. Of course, negative divergences on +DMI and ADX are as much imprinted on the leading sector Bank Nifty as well. In the coming days, if ADX makes a lower peak below 25, we can expect a retracement in Bank Nifty as well.
As we discussed earlier in this column, the serious divergences in RSI and MACD are still a presence in all the time frames. These divergences are clearly visible in monthly charts as well. The Doji candle on a monthly chart is another sign of tiredness of the bulls and indecisiveness in the market. Barring the yearly chart, all other time frames formed hanging man and doji like candles and thereby, are the clear signs of an intermediate top in the market.
At this juncture, in any case, Nifty closes below the last week’s low of 12,119, means a reasonable correction is offing. The market mean average or a magnet of the market, 20-DMA is also placed at 12,100. The recent base around 11,850 levels is strongest support for now. This is the level to be watched even for the mediumterm. For now, we cannot project more than this level as earnings season and the General Budget is at doorstep.
As there is no sign of improvement in fundamentals of the economy as well as no surprises on earnings front in the last quarter, we are trading at historical high Price-Earnings (PE) ratio. Only earnings improvement and stimulus packages related to various sectors in the budget can boost the sentiment of the market.
For now, the approach to the market is cautionary for any new acquisitions and look for profit booking, partially
JUBILANT FOODWORKS
BUY ..... CMP Rs 1,652.60
BSE Code : 533155
Target 1 .... Rs 1,740
Target 2 ..... Rs 1,765
Stoploss.... Rs 1,570 (CLS)
Jubilant FoodWorks is India’s largest food service company, which also operates Domino’s Pizza restaurant chain with exclusive rights. The company operates nearly 1,300 restaurants across the country. Technically, the stock has decisively broken out of 6-week flat base pattern. Prior to the flat base, it has broken a 60-week double bottom or a ‘W’ pattern. The stock closed at a new lifetime high on Tuesday. The leading indicator RSI has broken the flag pattern. It is meeting the Mark Minervini’s trend template criteria for a bullish set up. The 40, 30 and 10 weekly moving averages are trending up in a sequence. The trend strength indicator ADX is clearly trending up and above 31.46 means the stock is in a very strong bullish trend. The stock is also meeting the CANSLIM characteristics. Its price relative strength is as high as 91 and EPS strength is at 85. Greater buyers demand (A-) indicates the institutional investors’ interest in the stock. The institutional investors increased their stake in the company by 9.08 per cent in the last quarter. Its Return on Equity (ROE) is at 24 per cent. It is a zero debt company at a decent valuation at current price. Buy this at Rs 1,652.60 with a stop-loss of Rs 1,570. The target is open to Rs 1,740-1,765.
NESTLE INDIA
BUY ................ CMP Rs 14,789.95
BSE Code : 500790
Target 1 ..... Rs 15,600
Target 2 ..... Rs 15,800
Stoploss.... Rs 13,980 (CLS)
Nestle India is a subsidiary of Nestle SA, which is India’s leading food processing company engaged in manufacturing of milk products and other food products like beverages and cereals. Currently, the stock is trading just 2 per cent near to the lifetime highs. After reaching the life time high of Rs 15,146, it has formed a base at Rs 13,986 level. The current 10-week flat base pattern is a consolidation phase in ongoing bullish trend. The stock is meeting all trend setups including Minervini’s trend template. The stock is trading above the 40, 30 and 10 weekly averages and the averages are trending up. ADX is at 47.41, indicating that it is one of the strongest bullish stocks in the current market. The stock is also meeting all the CANSLIM criteria. Its price relative strength (RS) is at 89 and the EPS strength is at 80. The buyer demand shows the institutional interest in the stock. The institutional investors increased their stake in the company by 3.38 per cent in the September quarter. Its double digit growth in earnings and 44 per cent return on equity made the stock fundamentally attractive. Buy this stock at Rs 14,789.95 with a stop-loss of Rs 13,980. The target is placed at Rs 15,600-15,800 in a short-term.