NIFTY Index Chart Analysis

BANKING SECTOR TO REGAIN LOST GROUND

As a trader you would always expect the markets to perform at a pace of popular slam-bang version of cricket T-20, while currently the pace at which the market is moving is matching the pace of a traditional five-day match, popularly known as a Test Match. Right at the start of the month there was some hustlebustle as Nifty began the month with a sharp down move, but on the very next day it recouped its entire losses and began its northward journey while on Tuesday it touched a new swing high of 11,373.60. 

Month till date, the frontline gauge Nifty has gained 2.25 per cent, but the broader indices have emerged as the super hero of D-Street with Nifty Mid-Cap and Small-Cap registering staggering gains of 5.08 and 7.19 per cent, respectively. As for institutional activity, month till date FIIs were net buyers to the tune of Rs 10,813.34 crore while DIIs were net sellers to the tune of Rs 4,054.30 crore. The DIIs were net sellers for July and we sense that August may actually end up being a month of intense selling by domestic institutions in the equity segment.

On Tuesday, August 11, Nifty closed above the 11,300 mark and recorded its best closing in over five months. Further, it recorded its sixth consecutive day of rise. However, the price action since August 5 is suspicious in nature as Nifty has formed indecisive bars in each of the past five sessions and also, after opening with a positive bias, the price is closing near to the open. Additionally, the daily spread i.e. the difference between the high and low is getting narrower and narrower.

The spread of the last five trading session stands at 161, 129, 90, 99 and 74; interestingly, the spread was below the 10-day average spread. This compression of range further indicates that this could be the proverbial calm before the storm as range compression is usually followed by a range expansion phase. However, range compression should not be viewed in isolation because if we check India VIX it has reached a five-month low and is near the 20 mark, which indicates volatility has shrunk.

The price action on Tuesday has formed a Doji pattern with a NR7 bar, which is a perfect compression pattern and hence the high and low of Doji’s candle would be important and closely monitored by the traders. Going ahead, any breach of low of the Doji candle i.e. 11,299 would result in confirmation of a Doji pattern and also for the first time since Nifty would close below the prior bar low, it may be the first sign of reversal in the index.

On the upside, the level of 11,370-11,380 is a crucial resistance point as defined by the 78.6 per cent retracement level along with the trend line resistance, which is formed by adjoining the lows made in October 2018 and August 2019 and also the current swing high is placed in this region. On the downside, major support is placed around 10,848 which is in the form of 200-DMA. Hence, in the coming days the broad trading range would be from 10,848-11,380. Sector rotation has been one of the major essences of the current phase and most of the sectors have participated to lend support to the index. Due to sector rotation the index has weathered the storm. 

However, the Banking index has not participated in the manner one would have expected. Going forward, we feel the onus is on the Banking index. Bank Nifty is trading in the broad range of 21,000- 23,000 and is seen forming a strong base of around 21,000 mark as for the past two months it tested these levels at least four times. Furthermore, on 75 minutes timeframe it has given a breakout of the ascending triangle pattern which is positive and the target of the pattern is around 22,800-23,000. Hence, Banking index has the potential to move towards these levels. All-in-all, the Nifty index might take a deep breath after gaining nearly 50 per cent from the March lows but traders can shift their attention to the Bank Nifty and look for trading opportunities in the banking sector. 

STOCK RECOMMENDATIONS 

LINCOLN PHARMACEUTICALS LTD. ............. BUY .......... CMP Rs 225.10 

BSE Code : 531633 | Target 1 .... Rs 245 | Target 2 ..... Rs 250 | Stoploss....Rs 209 (CLS)

Lincoln Pharmaceuticals Limited (LPL) is engaged in the business of manufacturing, marketing and distribution of pharmaceutical products. The company offers products such as tablets, capsules, liquid injections, cream in tubes, dry power injections, liquid in bottles, liquid injections and pharmaceutical products. Technically, the stock has formed a spinning bottom candlestick pattern as on March 19, 2020 and thereafter marked a sequence of higher tops and higher bottoms. Considering the daily timeframe, the stock has given a horizontal trend line breakout formed by connecting swing highs since March 2018. Further, since the last 11 trading sessions, volume is above the 50-day average, indicating strong buying interest by market participants.

The stock is meeting Daryl Guppy’s multiple moving averages set-up rules as it is trading above both the short and long-term moving averages. There is a ‘golden crossover’ observed in the stock with the 50-DMA having recently crossed above its 200-DMA, which is a positive signal. The RSI is in bullish territory on both weekly and daily timeframes. Moreover, the other volume-based indicators like OBV and Money Flow index are also very strong. Considering the above factors, we recommend buying this stock with a stop loss of Rs 209 on a closing basis for a target of Rs 245-250 in the short to medium term.

VOLTAS LIMITED ............................... BUY ..................... CMP Rs 608.20

BSE Code : 500575 | Target 1 ..... Rs 645 | Target 2 ..... Rs 655 | Stoploss....Rs 573 (CLS)

Voltas Limited is engaged in manufacturing airconditioning and engineering products. It provides room air-conditioners, commercial refrigeration products and sale of services. After registering a high of Rs 617.25, the stock has witnessed minor correction. The correction is halted near the 38.2 per cent retracement level of its prior upward move (Rs 529.60 - Rs 617.25) and it is coincides with the 20-day EMA. The reversal form support is further justified with robust volume. Currently, the stock is trading above its weekly pivot and above its short and long-term moving averages.

The leading indicator, 14-period daily RSI, is currently quoting at 61.70. The RSI is trading above its nine-day average and is in a rising trajectory, which suggests further bullish momentum. The trend strength indicator, Average Directional Index (ADX), is at 29.76, which indicates strength. The directional indicators continue in the ‘buy’ mode as +DI continues above –DI. This structure is indicative of the bullish strength in the stock. In the medium term, the recent swing low of Rs 573.80 is likely to act as major support while on the upside the stock is likely to head towards the level of Rs 645, followed by Rs 655. We recommend buying the scrip with stop loss of Rs 573 on a closing basis.

(Closing price as of Aug 11, 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.