NIFTY Index Chart Analysis
REMAIN WITH THE TREND
The bull on D-Street seems unstoppable as Nifty extended its northward journey for the sixth successive week, making it the longest winning streak post April 2019. Further, every critical resistance is being dispatched to the casualty list and the list continues to grow as Nifty has managed to overcome the bearish gap (11,035-11,244) of March 6. This buoyant move can be accredited to the news on COVID-19 vaccines and treatments and on the domestic front, a pleasant surprise from the earning season as the corporate earnings haven’t been as bad as analysts expected. In fact, the earnings season has added some visibility that was missing.
Meanwhile, the Bank Nifty has been quite volatile over the concern that banks are likely to face the brunt post the end of the EMI moratorium period. However, it is also finding its mojo and is seen prepared for a big move. After spending nearly five trading sessions in the consolation range of 11,058-11,240, finally on Tuesday Nifty broke its shackle and ascended higher to close at the 11,300 mark for the first time ever since March 3. The bulls once again displayed strength and every opportunity presented in the form of shallow dips has been bought.
The institutional participants are tepid with FIIs turning net buyers to the tune of Rs 3,594.15 crore month till date, while for the same period DIIs have been net sellers to the tune of Rs 9,557.75 crore. The worry for the markets would be on the domestic flows front as they have been consistently in the negative zone for some time now. The Nifty has retraced almost 78 per cent of the down move which started from January and also it has gained almost 50 per cent from the March lows. Let’s revisit history and check how the current V-shaped recovery has fared in comparison with the past.
We have categorized severe falls where the index has corrected over 35 per cent from the top and there are total four instances when these criteria have been met. With the fourth being the recent COVID-19 pandemic fall, the other three have been from the past. Following are the details in the year 1992 and 2000 when we saw a severe fall of 53 per cent from the top, while in 2008 the fall was more severe – nearly 65 per cent and the 2020 recent being 40 per cent.
In 1992, with a fall of 53 per cent, markets took around 54 weeks, while in 2000 and 2008 the fall took about 82 and 42 weeks, respectively. The very recent one took about 11-12 weeks. Now let us check how much time it took to reach near about its previous highs (near to the previous highs or within 1 per cent of the previous high). The major fall of 1992 took almost 38 weeks to reclaim its previous high, while the fall of year 2000 took 117 weeks and the fall of 2008 took almost 101 weeks to reclaims its previous high. So the fall of 1992 reached its previous high within less than the actual period of fall.
On the other hand, the year 2000 fall took about 1.4 times to reach its previous highs and the 2008 fall took almost 2.4 times to reach near about its previous high. The 2020 fall has almost taken 18 weeks to retrace 78 per cent of the recent fall. So it means that on a time basis we have already passed the 1.4 time threshold and we are still 9 per cent away from all-time highs. Hence, the past observation suggests we can do a repeat of 2008 if we scale back to an all-time high in near about 29 weeks.
On the technical front, going by the simple trend analysis and Dow Theory, if we look at the index, then clearly it is in an uptrend making higher highs and higher lows. The uptrend remains intact as long as the sequence of higher tops and higher bottoms sustain. Talking about the levels of Nifty, the range of 11,377-11,400 seems to be an immediate hurdle for the index and with a close above the 11,377-11,400, the Nifty likely to move towards 11,537 to fill the bearish gap. On the downside, immediate support is seen around the 11,200-11,240 levels and a close below this could take the index towards the 11,050 levels.
Though the valuations have reached historical high levels as the PE stands at 29.87, it’s a sign of caution for traders and investors, but as the saying goes, be with the trend until its bends and we would be with a bullish bias.
STOCK RECOMMENDATIONS
COCHIN SHIPYARD ....................... BUY ....................... CMP Rs 333.50
BSE Code : 540678 | Target 1 .... Rs 363 | Target 2 ..... Rs 370 | Stoploss....Rs 320 (CLS)
Cochin Shipyard is mainly engaged in the constructions of vessels and repairs and refits of all types of vessels including upgradation of ships, periodical lay-up and life extension of ships. The stock has rallied more than 50 per cent from the lows seen in the last week of May 2020. After a strong upmove the stock has been consolidating for almost 16 trading sessions. However, during this consolidation phase the stock has managed to hold above its 20-DMA.
However, the price in this consolidation phase formed another volatility contraction pattern which is known as the double inside bar, which is a price action candlestick pattern where two inside bars form successively. This pattern indicates a lack of volatility and often is followed by a strong movement. As the price is holding above the 20-DMA and the RSI is trading in bullish territory in the daily timeframe and on the weekly timeframe, it’s on the verge of entering into a bullish territory. This indicates the price should witness breakout on the upside. The stock is clearly in an uptrend and the trend strength is extremely high. The average directional index (ADX), which shows trend strength, is as high as 48.54 on a daily chart. Generally, above 25 levels is considered as a strong trend. Further, the directional indicators continue in buy mode as +DI continues above –DI. Considering above factors, we recommend buying this stock with a stop loss of Rs 320 on a closing basis for a target of R 363-370 in the short to medium term.
HAVELLS INDIA ............................... SELL ..................... CMP Rs 576.25
BSE Code : 517354 | Target 1 ..... Rs 540 | Target 2 ..... Rs 525 | Stoploss....Rs 605 (CLS)
Havells India is a leading fast moving electrical goods (FMEG) company and a major power distribution equipment manufacturer with a strong global presence. Havells enjoys enviable market dominance across a wide spectrum of products, including industrial and domestic circuit protection devices, cables and wires, motors, fans, modular switches, home appliances, air conditioners, electric water heaters, power capacitors, luminaires for domestic, commercial and industrial applications.
The stock has closed at the very critical levels as it is nearing a rising channel breakdown. Further, the stock formed a sizable bearish candle along with above average volume, which indicates selling pressure. Also, the stock breached its 20-DMA. There is a negative divergence visible on the 14-period RSI on the daily timeframe. Further, RSI has breached its swing low, which is bearish for the stock. A bearish crossover is seen on the MACD. Further, the -DI is crossing over +DI, indicating bearish momentum is likely to surge. We recommend our readers to initiate a short sell strategy in the stock with a stop loss of Rs 605 for a target of Rs 540 and below that the next level can be watched is Rs 525.
(Closing price as of July 28, 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.