NIFTY Index Chart Analysis

BULLS BACK IN THE GAME

Stock markets have an uncanny ability to surprise, as they did a few weeks ago when Dalal Street looked completely deserted with market participants gripped with the fear of the virus pandemic and the escalating tensions between the world’s two largest economies. However, it has now changed to the usual hustle and bustle and the key catalyst for this optimism is that market participants are expecting a speedy recovery following the economic reopening. Further, Prime Minister Narendra Modi’s speech at the Confederation of Indian Industry (CII) session where he said that India’s economy would get back on track and reforms undertaken during the lockdown will help the economy in the long-run was music to the ears of the bulls.

Another booster was the announcement that the monsoon would be normal this year. The month of May which looked very grim given that every rise in the market was met with huge selling has now made way for a turnaround with the bears retreating and the bulls taking charge. Ever since then the bulls have been on a song and closed above the April 30 high. For May, even though Nifty registered a net loss of 2.84 per cent, it closed near the highs of the month and recovered almost 9 per cent from the lower level of 8,806.75. The advance decline ratio stood at 0.89 for May but, barring one trading session from the last 10 trading sessions, it was significantly inclined towards advancers.

In the first two trading sessions of the June month too advancers have outpaced decliners. In the broader market, Nifty Mid-Cap and Small-Cap ended the month with a net loss of 1.70 and 1.84 per cent, respectively. Interestingly the FIIs who were net sellers for the past four months from January-April turned net buyers in May and DIIs too were net buyers. Further, in the first two trading sessions of June they had bought net shares to the tune of Rs 9,073.75 crore. Nifty ended the Tuesday session at 9,979.10, which is the best closing since March 13. The bulls’ express which started its journey from the 8,806 level has registered a rally of 11 per cent from lower levels in just five trading sessions.

Also, this is the first time after January that the Nifty has rallied for five days continuously. On the way up, it filled the bearish island gaps which were created on May 4 and 13. Also, it has precisely closed above the 50 per cent retracement level of its fall from 12,430.50 to the bottom of 7,511.10. Now Nifty has ventured into a crucial resistance area of 9,970-10,000. Why is this zone a big hurdle? First, the 50 per cent retracement level of a major decline from February 2020 to March 2020 is placed at 9,970 and secondly, the 10,000 mark is a big round so that a kind of ‘roundophobia’ factor comes into play.

David Fuller defined roundophobia as ‘the tendency of markets to at least pause in the region of round numbers’. Hence, it’s important for the index to sustain and close above this level in the coming trading session for continuation of an up-move. However, we believe the bulls express would take halt as a temporary breather would only make the market healthy. After an astonishing rally of almost 11 per cent, the low of 8,806 has hauled the daily stochastic oscillator in overbought territory and in the lower timeframe there has been a negative divergence formed on the RSI since Nifty has made a higher high and the RSI has not made it as high. 

The near-term trend completely remains in favour of the bulls as the Nifty has formed higher highs in the last five trading sessions and has closed above the 20 and 50 DMA. Further, the 20 DMA is trading above the 50 DMA and both the moving averages are trending up, which confirms the strength of the trend. Going forward, the index might attempt to fill the gap area of March 13 (10,334- 10,040.75). On the downside, the gap area of June 1 is likely to act as a strong support level as long as Nifty continues to trade above the gap area of June 1 with a positive bias. Overall, the trend remains in favour of bulls but a pause or a consolidation cannot be ruled on in the coming days. This consolidation is important as it will also create a strong base for the next round of the rally. 

STOCK RECOMMENDATIONS

GUJARAT GAS ........................... BUY ......................... CMP Rs 250.60

BSE Code : 539336 | Target 1 .... Rs 274 | Target 2 ..... Rs 282 | Stoploss....Rs 235(CLS)

Gujarat Gas is India’s largest city gas distribution player with its presence spread across 23 districts in the state of Gujarat, Union Territory of Dadra and Nagar Haveli and Thane geographical area (GA) (excluding already authorised areas) which includes Palghar district of Maharashtra. The company has India’s largest customer base in the residential, commercial and industrial segments. Technically, the stock has witnessed a hefty price correction of nearly 39 per cent from its all-time high of Rs 313.80. Thereafter, the stock had retraced almost 61.8 per cent of the entire fall. However, it failed to close above the 61.8 per cent retracement level and entered into a sideways corrective phase and during this phase the stock formed a higher base around 228-232 which also coincides with 50 per cent retracement level of the up-move from the lows of March.

Recently, the stock had attempted to break out of the downward sloping trend line formed by the adjoining highs of February- March and April. Further, the stock has witnessed faster retracement of the recent down leg from Rs 256.85. It is also meeting a majority of the CANSLIM criteria and trading above important short-long-term moving averages. Based on the above technical observation, we expect the stock to continue its up-move and head towards April 20 swing high of Rs 274 followed by Rs 282. Traders can maintain stop loss at the level of Rs 235.

SUMITOMO CHEMICAL INDIA .................... BUY ................ CMP Rs 270.20 

BSE Code : 542920 | Target 1 ..... Rs 286 | Target 2 ..... Rs 295 | Stoploss....Rs 255 (CLS)

Sumitomo Chemical India manufactures, imports and markets product for crop protection, grain fumigation, rodent control, bio-pesticides, environmental health, professional pest control and feed additives for use in India. The company has also marked its presence in Africa and several other geographies of the world. The stock is trading nearly 4 per cent away from its all-time high of Rs 281.90. It corrected almost 46 per cent from its all-time high level of Rs 281.90 to register a low of Rs 151.05. The stock has retraced more than 88 per cent of its down-move from all-time high to March 25 low. Recently, the stock has witnessed breakout of a consolidation range. The stock was seen consolidating between the high-low ranges of weekly bar of April 30. This range consolidation took the form of a pennant pattern on the daily timeframe. The stock witnessed breakout of this range consolidation on the weekend of May 29 along with robust volumes. Further, it formed an opening ‘marubozu’ candlestick pattern on the weekly time scale. An opening marubozu is a long white single candlestick pattern having an upper shadow but no lower shadow. The stock is looking strong fundamentally and technically and hence one can buy it with a target of Rs 286 followed by Rs 295 with stop loss of Rs 255.

*LEGEND: EMA - Exponential Moving Average. MACD - Moving Average Convergence Divergence RMI - Relative Momentum Index ROC - Rate of Change RSI - Relative Strength Index
(Closing price as of June 02, 2020)
Disclaimer : Above recommendations are based on various technical parameters and any fundamental input has not been considered for the recommendations. Follow strict stop loss for the recommendation.