NIFTY Index Chart Analysis : NOT OUT OF THE WOODS YET!
There is a famous dialogue from a Hindi film that goes thus: “Film sirf teen cheezon se chalti hai, entertainment, entertainment, and entertainment!” Well, with the markets overcoming hurdles one by one it could be said that liquidity, liquidity and liquidity is helping the markets to ride over all the concerns. As a result, the Nifty extended its up move for the fourth straight week as on the weekend of July 10. The Nifty has rallied almost 45 per cent from the lows of March to July high, surpassing the 10,800 mark. Further, the Nifty Midcap and Smallcap have also jumped 44 and 54 per cent, respectively.
Currently, nearly 74 per cent constituents of Nifty 500 are trading above their 100-SMA compared to reading of about 60 per cent at the end of June. This clearly indicates rise in the market along with improvement in the market breadth. However, after overcoming a plethora of resistance in the form of 100-DMA, 61.8 per cent retracement level of the recent fall, Bearish Island and 200-weekly MA, the Nifty found resistance around its 200-DMA. During the last week, Nifty formed majorly indecisive bars on the daily chart and this resulted into a formation of the Spinning Top pattern on the weekly timeframe. This clearly suggested that the momentum is waning at the higher levels.
After trading between the range of 10,676-10,848 for the five trading session, Nifty began the fresh week with bullish momentum and managed to pierce the range on the higher side on an intraday basis, and it seemed once again the tight consolidation range would resolve higher and the Nifty would march higher towards the 11,000 levels like it had done in the last couple of instances. However, it failed to sustain at higher levels and it proved to be trap for the bulls. On Tuesday, the Nifty opened lower and it declined sharply equal to the tight consolidation range as we have kept mentioning time and again that breakout or breakdown from the consolidation leads to fast movement and this is what we have managed to see. BankNify also plunged over 3 per cent and resulted into a failed double bottom breakout as it closed below the rising wedge and below the 20-DMA. Further, all the components of the Bank Nifty closed in the negative territory with many frontline banking stocks exhibiting bearish patterns. Now, going forward, the zone of 10,480-10,550 is a crucial support level for Nifty. Why the zone of 10,480-10,550 is a crucial support zone is because its confluence of 20-DMA and 50 per cent retracement level of the last leg of up move (10,195-10,894) is placed in this region.
The current fall shall get accentuated if the index manages to close below this support region as it would result into a breakdown of the rising wedge pattern. Further, a close below the 10,500-10,550 level would signal formation of an intermediate top. The next key support is seen around the levels of 10,180-10,200. On the upside, immediate resistance is placed at the 10,800 mark followed by the 10,880 where the 200-DMA is placed. Near-term direction of the markets will be dictated by the rise in the corona virus cases, global cues and the Q1 earnings.
The Q1 earnings of many corporates are likely to be weak amid lockdown by the government to curb the virus infection. However, commentary by corporates would be crucial as they would provide a sense of the future outlook and roadmap of demand recovery. We would advise traders to book profit at regular intervals and investors to stay cautious and avoid aggressive bets at the current levels. Stock-specific action would continue. However, we would advise investors and traders to take selective bets if they want to venture into banking and financial stocks. Bullish momentum is expected only on close above the 10,880 levels. Stay light and stay safe is the mantra!
STOCK RECOMMENDATIONS
ALKEM LABS .......................... BUY .......................... CMP Rs 2,477.75
BSE Code : 539523 | Target 1 .... Rs 2,650 | Target 2 ..... Rs 2,720 | Stoploss....Rs 2,350(CLS)
The company is one of India’s largest generic and specialty pharmaceutical entities. It has consistently ranked amongst the top 10 pharmaceutical companies in India and its portfolio includes leading brands like Clavam, Pan, Pan-D and Taxim-O, which feature amongst the top 50 pharmaceutical brands in India. For over a decade, the company’s dominance in the anti-infective segment has remained unchallenged. After registering a high of Rs 2,870 on April 27, the stock entered into a correction mode which halted near about the 200-EMA. Thereon, the stock consolidated in a range and this led to the formation of a triangle pattern.
Recently the stock has witnessed resolute breakout from the triangle pattern, thus signalling start of a fresh leg of upward movement. The 14-period RSI on the daily timeframe has entered into bullish territory. Further, the directional indicator is in a buy mode as +DI is above the –DI on the daily timeframe. The MACD histogram is rising, thus reflecting the bulls being in control of the trend. The uptrend is accelerating. Considering above factors we recommend buying the stock with a stop loss of Rs 2,350 for a target of Rs 2,650 followed by Rs 2,720.
ALEMBIC LIMITED .......................... BUY ....................... CMP Rs 82.20
BSE Code : 506235 | Target 1 ..... Rs 94 | Target 2 ..... Rs 103 | Stoploss....Rs 75 (CLS)
Alembic Limited is engaged primarily in two businesses: pharmaceuticals and real estate. In pharmaceuticals the company is engaged in manufacturing and marketing of fermentation and chemistry-based APIs. In the real estate segment it is engaged in residential and commercial projects. The stock is meeting all the CANSLIM characteristics. The relative strength, which indicates the price performance compared with the market, is as high as 94. The buyer demand rating stands at A+, which is considered great. The EPS strength is good at 91. The group rank is good too. Interestingly, the stock is also meeting Warren Buffet’s rules of investing. As the stock is trading near its all-time high levels, it is above its important short and long-term moving average. The stock is meeting Mark Minervini’s trend template. It is trading above 40, 30 and 10-weekly averages and all of them are trending up. At the same time, there is a desired sequence. The 14-period RSI is in bullish territory and the trend strength is extremely high. The Average Directional Index (ADX), which shows trend strength, is as high as 45 on a daily chart and 29 on a weekly chart. Generally, above 25 levels is considered as a strong trend. In both timeframes, the stock is meeting the criteria. Furthermore, the directional indicator is in the buy mode as +DI is above the –DI on the daily timeframe. Hence, we recommend buying this stock since the consolidation phase is providing an opportunity for traders to buy this stock with a target of Rs 94 followed by Rs 103 with a stop loss of Rs 75.
(Closing price as of July 14, 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.