NIFTY Index Chart Analysis

A PHASE OF CONSOLIDATION

A fortnightly view on Nifty 50 and two investment ideas on the basis of intensive technical analysis in a 15-day horizon.

Despite the markets ending the last trading session of June month with a negative bias, overall, the month of June turned out to be a triumphant one as Nifty recorded gain of 7.5 per cent. While outpacing the Nifty, Bank Nifty recorded a double digit gain of 10.74 per cent. Further, in June, all the components of Bank Nifty ended in green. If this was not enough, the broader markets surprised everyone with Nifty Mid-Cap and Small-Cap jumping 10.78 and 15.29 per cent in June. India VIX, a barometer of the market’s expectation of volatility over the near term, declined for the third straight month. In institutional activity the FIIs ended the month with overall net inflow of Rs 5,492.95 crore in the cash segment while DIIs reported a net inflow of Rs 2,434.40 crore.

With this exultant performance in June, market participants would be eyeing even the month of July to be a cheerful one. But let us look at the technical charts to get sense of what and how the technical patterns and parameters are currently poised and what they indicate. Since June 25, Nifty has been consolidating in a range and not giving much to any of the camp. It is broadly moving in the range of 10,194.50-10,409.85. During this range-bound trading, a majority of the candle formation is indecisive in nature. But the candle formed on June 30 is a bearish one.

However, this bearish candle formation is placed within the consolidation phase and hence its relevance is not of high importance. Usually this type of tight consolidation is a clear sign of a volatility contraction phase where after a sharp move, markets or security tend to trade sideways before taking the next leap forward. A break on either side of the consolidation leads to sharper moves. In May we saw similar consolidation taking place between May 18-26 and after breaking out of the range, the index saw a robust upmove.

This type of tight consolidation is not pretty much helpful for trend traders.

However, options traders enjoy such type of range consolidation phases where they try to profit from the time decay. Going ahead, the important levels to watch out would be 10,410 on the higher side and 10,194 on the downside. A break on either side would open doors for a directional move. A sustainable move above 10,410 would open doors for 200 points and similarly, a move below 10,194 would result in a swift move of 200 points. So this may result in an upside target of 10,610-10,750. Whereas, on the downside, 10,000 would be followed by the 9,929 level.

In the lower timeframe i.e. hourly, the Bollinger bands are narrowing and the RSI on the hourly timeframe took support at 40 while inching higher. Meanwhile, on the daily timeframe it’s above the 60 mark. On the daily timeframe, ADX is 19.34 and suggests that the trend is yet to be developed. Directional indicators continue in the ‘buy’ mode as +DI continues above –DI. Thus, a majority are signaling a bullish bias. Overall, in the near-term, consolidation could be seen in the range of 10,194-10,410 and either side breakout would result in a range breakdown or breakout. Thereafter, traders can take an aggressive position to play the trend. As long as consolidation continues, focus on stock-specific action.

STOCK RECOMMENDATIONS

TATA ELXSI ............................. BUY ............................. CMP Rs 897.50

BSE Code : 500408 | Target 1 .... Rs 980 | Target 2 ..... Rs 1024 | Stoploss....Rs 845(CLS)

Tata Elxsi is amongst the world’s leading providers of design and technology services across various industries including automotive, broadcast, communications and healthcare. The stock has witnessed a breakout of bullish pennant pattern, indicating continuation of the positive trend. Further, the breakout is supported by robust volume of more than double of 30 days’ average volume, indicating strong buying interest by market participants. The stock is forming a series of higher high and higher lows after from registering a low of Rs 499.95 as on March 25. Further, this trend confirmation is given by the moving averages as the stock is trading above its important short to long-term moving averages i.e. 20, 50 and 200 DMA. It is also in a rising trajectory. There is a ‘golden crossover’ observed on the stock as the 50 DMA recently crossed above its 200 DMA, which is a positive signal. The 14-period RSI on the daily timeframe is in bullish territory. Furthermore, in the recent sideways to corrective mode the RSI never breached its 60 mark, which indicates that the stock is in a super bullish range as per RSI range shift rules. The trend strength indicator, Average Directional Index (ADX), is at 38.25, which indicates strength. The +DI is much above the -DI. This structure is indicative of the bullish strength in the stock. Considering the above factors, buy this stock in the range of Rs 880-905 with a stop loss of Rs 845 on a closing basis for a target of Rs 980-1,024.

NIPPON LIFE INDIA ASSET MANAGEMENT .......... BUY ....... CMP Rs 314.85

BSE Code : 540767 | Target 1 ..... Rs 350 | Target 2 ..... Rs 359 | Stoploss....Rs 290 (CLS)

The company is engaged in the business of fund management activities. In the swift corrective decline during the period of February-March the stock corrected more than 50 per cent and registered a low of Rs 207.70 in March. Similar lows were tested in the month of April. Hence, the stock has formed a strong base in this region and is headed higher. During this up-move the stock witnessed a resolute breakout of the horizontal trend-line placed at the level of Rs 292-299. Following a breakout, the stock’s price moved swiftly and marked a high of Rs 322. Thereafter, the stock has been seen moving in a sideways phase. It re-tested its breakout level. If we take into account the volume activity during this sideways phase, it’s not significant and hence it should be viewed as a routine decline after a robust move. The current re-test of breakout level offers a favourable entry point. The stock is trading above its 20 DMA and the 20 DMA is in a rising trajectory. The leading indicator RSI on the daily timeframe is in bullish territory, which is a positive signal. We expect the stock to move higher and test levels of Rs 350-359 in the medium term as it is the 61.8 per cent retracement of the decline of February-March. One can maintain a stop loss of Rs 290 on a closing basis.
(Closing price as of June 30, 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.