NIFTY Index Chart Analysis : TAILWINDS PUSH NIFTY AHEAD

Before we begin let’s do a recap of what we had mentioned in our previous market update. We had stated that Bank Nifty was likely to regain its lost ground and according to the measure rule of the ascending triangle pattern index was likely to touch the level of 22,800-23,000. The banking index behaved on predicted lines. Month till date, Bank Nifty has gained nearly 7 per cent. Along with Bank Nifty, Nifty Private Bank and Nifty Financial Services have gained 6.07 per cent and 5.87 per cent, respectively. The Nifty continued its northward journey at a snail’s pace and registered gains of 149.75 points or 1.32 per cent from the close of August 11, 2020. But the real action was seen in the mid-cap and small-cap space. From the close of August 11, 2020, the Nifty Mid-Cap and Small-Cap registered staggering gains of 5.55 and 7.71 per cent, respectively. The India VIX, a barometer of the market’s expectation of volatility over the near term, declined for the sixth straight week. In institutional activity, month till date FIIs were net buyers to the tune of Rs 15,395.61 crore, which has been the highest since March 2019 while DIIs were net sellers to the tune of Rs 9,180.21 crore.

'Just as every good chart analysis starts with an examination of the trend, we too shall analyse the trend of the index by looking at the swing points. As per the simple trend analysis and the Dow Theory, the index is in a confirmed uptrend as it is making higher highs and higher lows. Also, in the current week, the Nifty has closed above the 78.6 per cent retracement level of its prior downward move of 12,430.50 – 7,511.10. However, the current structure of indicators does not represent an encouraging picture. There are divergences everywhere. 

The index has marked higher highs but most of the indicators, including the daily RSI, have not reached the prior highs. The Commodity Channel Index (CCI) and Martin Pring’s KST indicator have also supported the same phenomenon. ADX, the trend strength indicator, is moving downwards. Even though the Nifty is trading above the 200-DMA, the long-term moving average is still in a downward trajectory. These factors may create some suspicious vibes about the continuity of the upward rally in the markets but it does not mean that we should go ahead and short the markets blindly. It needs to be confirmed by price.

One interesting takeaway for the bulls is that on August 21, 2020, the Nifty index formed a ‘golden crossover’ pattern, which is considered as a long-term bullish sign. In technical parlance, the golden crossover occurs when a short-term 50-day simple moving average crosses above the long-term 200-day simple moving average on any indices or stocks. Since 2009, there have been eight instances when a golden crossover has occurred in the Nifty index. In these instances, five provided positive returns and three turned into losing trades.

Currently, the 50-DMA of the Nifty is placed at 10,895.70 and the 200-DMA is placed at 10,825. Interestingly, along with the Nifty index, the Nifty Mid-Cap index has also witnessed golden crossover while the Nifty Small-Cap is on the verge of giving a crossover. Going ahead, as long as the sequence of higher highs and higher lows continues, the uptrend will remain intact. The immediate supports are shifting higher in the zone of a level of 11,410-11,370. Meanwhile, major support is placed in the zone of 11,290- 11,240 as it is the confluence of swing low and short-term moving average, i.e. 20-day SMA. 

In case the Nifty sustains below the level of 11,240, it would invite further selling and it may test its swing low of 11,111 registered on August 14, followed by 10,882. On the upside, the zone of 11,536-11,600 is crucial resistance for the bulls to continue the rally. If it is unable to surpass this level, then there are chances of entering into a corrective to sideways phase. Any sustainable close above 11,600 is likely to open up gates for a bigger target of the 12,000 level as there is no meaningful resistance placed between the levels of 11,600 – 12,000. 

STOCK RECOMMENDATIONS 

BAJAJ FINSERV LIMITED .................... BUY ............... CMP Rs 6,502.75 

BSE Code : 532978 | Target 1 .... Rs 6,900 | Target 2 ..... Rs 7,030 | Stoploss....Rs 6,190 (CLS)

Bajaj Finserv Limited is a holding company for various financial services’ businesses. The company is engaged in the sector of promoting financial services such as finance, insurance and wealth management through its investments in subsidiaries and joint ventures. The stock has formed a reversal piercing line candlestick pattern as on May 27, 2020 and thereafter marked a sequence of higher tops and higher bottoms. On Tuesday, the stock displayed a symmetrical triangle breakout on the daily timeframe. This breakout is confirmed by the above 20-day average volume. Currently, the stock is trading above its short and medium-term moving averages, i.e. 20-day EMA, 50-day EMA and 100-day EMA.

The stock’s Relative Strength Index (RSI) has reached its highest value in the last 14 days, which is bullish. Also, it has managed to close above the 60 mark after a span of almost 25 trading sessions. The daily and weekly MACD stays bullish as it is trading above its zero line and signal line. The MACD line just crossed the signal line and the histogram became green. In the medium term, the recent swing low of Rs 6,190 is likely to act as major support while on the upside the stock is likely to head towards the level of Rs 6,900, followed by Rs 7,030. We recommend buying the scrip with stop loss of Rs 6,190 on a closing basis. 

AKSHARCHEM (INDIA) LIMITED ................. BUY ................ CMP Rs 260.95 

BSE Code : 524598 | Target 1 ..... Rs 282 | Target 2 ..... Rs 290 | Stoploss....Rs 241 (CLS)

Aksharchem (India) Limited is engaged in the business of manufacturing and export of dyes and pigments. The company’s products include Vinyl Sulphone and Copper Phthalocyanine (CPC) Green. The stock has formed a reversal Doji candlestick pattern as on the weekend of March 27, 2020 and thereafter witnessed a pullback rally. Currently, the stock has displayed a downward sloping trend line breakout formed by connecting swing highs from July 2020. Additionally, the stock has formed an opening bullish Marubozu candlestick pattern on breakout day, which indicates extreme bullishness. Further, since the last five trading sessions, the volumes are above the 50-day average, which is a sign of accumulation. 

The leading indicator, 14-period daily RSI, is currently quoting at 67.91 and it is in a rising trajectory. Interestingly, the RSI has also displayed a downward channel breakout. The Average Directional Index (ADX), which shows trend strength, is as high as 39.69 on the daily chart and 36.08 on the weekly chart. Generally, a level of above 25 is considered as a strong trend. In both timeframes, the stock is meeting the criteria. Considering the above factors, we recommend buying this stock with a stop loss of Rs 241 on a closing basis for a target of Rs 282-290 in the short to medium-term.

(Closing price as of Aug 25, 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.