NIFTY Index Chart Analysis

The Indian stock market has continued to touch new highs since November 28, 2019. As of now, the Nifty has reached new peaks seven times in the last one and a half months. After breaking down from the narrow range flat base, it bounced back with a gap up and continues to rise.

Now, the market has reached multiple resistance points in different trade setups. As expected earlier, the 12,350-400 zone has been covered and all our targets have been attained. The question now is whether this rally will continue till the budget. In that respect, let us examine the multiple scenarios. Historically, 14 out of 16 times the market made a major top in January or the first quarter of the calendar year. Most of the peaks witnessed high price earnings (PE) ratio of 28 and above.

In terms of valuations, we are again in a bubble territory with 28.67 PE. Against this background, as the earnings season already has begun, any kind of extraordinary performance will take us to a new high. This high PE has become normal since early 2018. The interesting observation is that the market rally led by selective large-caps is poised to change to mid and small-caps. As the outperformance coming from mid-cap and small stocks in recent times and the improved overall market breadth indicates, the rally is shifting from the large-caps. The fact that Nifty Mid-Cap and Small-Cap indices were decisively trading above the 200-DMA for the past two weeks is also a positive sign for the market. The Nifty Mid-Cap 100 index has broken out of the falling wedge and this is a bullish reversal sign.

The indicators also suggest bullish momentum. In the meantime, most of the large-caps seem to look tired or in a topping formation. Some of the largecaps are also trading with stretched valuation. Any kind of missing expectations from these companies may lead to a debacle. Now the question is, will these mid and small-caps have the capacity to lead the market? As for the Nifty, as it trades at a lifetime high, the trend is clearly upward. But, the momentum is waning. Just as a high is a new normal, the negative divergences have become normal. In the leading indicators, very serious negative divergences are visible across all timeframes. Most daily bars are small in size or bearish in nature.

The market may be moving upside but is suspicious in nature. At its lifetime high, the leading indicator RSI is still struggling to move above the prior swing high. It is moving in a downward channel. In all timeframes and in the hourly to monthly charts, negative divergence is clearly visible. The ADX (17.02), which indicates strength, is still much below the reasonable strength level of 25. The -DI is above the ADX and this is not a bullish sign. Though +DI is at a higher level, it will flatten when the market moves upward. As the MACD on a weekly chart indicates, the histogram is coming down, which means lack of momentum. The swings have become smaller in the recent past and this too is a sign of waning momentum.

In the broader picture, the Nifty is meeting a clear up in trending characters. If you look at the bar by bar, the down bars are more severe and sharper than the smaller up bars. These evidences lead to suspicion about the uptrend in the Nifty. The upside targets are becoming smaller and the downside targets a little sharper in nature. It leads to an element of doubt about the near future uptrend. But, I will wait for a lower low and a lower high for a bearish stance. It is time to focus on earnings and good quality mid and small-caps. As far as the levels are concerned, any close below the prior bar is a fist sign of weakness. A close below 12,270 may lead to a reasonable correction initially to the 12,100 level. Only below this, the Nifty may move lower than the recent swing low of 11,929. A close below 11,929 is a trend reversal sign. On the upside, a close above 12,395 will lead to the level of 12,519. Above this level, we need to observe the market behaviour and pattern formation.

BERGER PAINTS 

BUY .... CMP Rs 530.15
BSE Code : 509480
Target 1 .... Rs 570
Target 2 ..... Rs 580
Stoploss.... Rs 500 (CLS) 

Berger Paints has broken out of its 10-week Stage 2 cup-andhandle pattern. After breaking out of the 48-week bullish symmetrical triangle in August 2019, it has given whopping 60 per cent returns in just 13 weeks. This massive move in a shorter period has led to consolidation for 10 weeks. For the past 51 days, the stock has been forming a symmetrical triangle, and it has broken out decisively with good volume. As the stock reaches new lifetime highs, it is trading above all the moving averages and other trend indicators. It has never been below the 34 EMA ribbon since August 2019. The leading indicator RSI has broken out of the downward channel. The MACD has given a buy signal by moving above the signal line in above the zero line. The stock has CANSLIM characteristics. Its price relative strength is as high as 93 and EPS strength is at 95. The greater buyers’ demand indicates the highest interest of institutional investors’ interest. The institutional investors increased to 234 in the last few quarters. The 71 per cent increase in earnings shows its fundamental strength. The return on equity (RoE) is at 19 per cent. A debt-free company with 81 master score makes the stock fundamentally attractive. Buy this stock at Rs 530.15 with a stop-loss of Rs 500. The target is open to Rs 570-580. 

COLGATE-PALMOLIVE

BUY .................. CMP Rs 1,502.80
BSE Code : 500830
Target 1 ..... Rs 1,580
Target 2 ..... Rs 1,620
Stoploss.... Rs 1,450 (CLS) 

FMCG industry major Colgate-Palmolive has broken out of its 30-day consolidation and flat base on Tuesday. After forming a base at the 38.2 retracement level at Rs 1,436, the stock has clearly closed above the flat base. The volumes for the last two days have been above the average. At the same time, it has decisively closed above the short-term moving averages. The Bollinger Bands narrowed in the flat zone and with the breakout there are early signs of an exponential move on cards in the stock. The RSI also closed above the prior swing high and out of the range. Now it has entered into a bullish zone. The MACD line is above the signal line and very near to the zero line. The +DI has moved over -DI and the Average Directional Index (ADX) has improved a bit. This suggests that the trend is strengthening. The stock is also meeting a majority of the CANSLIM characteristics. Its price relative strength (RS) is at 83 and the EPS strength is at a decent 77. A good buyers’ demand indicates an institutional interest in the stock. In fact, institutional investors have increased their stake by 5.65 per cent in the company in the last quarter. The consistent performance in sales and earnings and 54 per cent return on equity (ROE) makes the stock attractive fundamentally. Buy this stock at Rs 1,502.80 with a stop-loss of Rs 1,450. The target is plac ed at Rs 1,580-1,620 in a short-term.