NIFTY Index Chart Analysis : TREADING A VOLATILE PATH
Paul Tudor Jones, one of the greatest traders of all time and a money manager, in an interview with Tony Robbins, was asked as to how he determines a trend. He replied, “My metric for everything I look at is the 200-day moving average of closing prices.” The 200-DMA is a great defensive tool to know when to get out of a position. It is also the last line of defence in an uptrend before the probabilities shift to a downtrend beginning.And truly, the above mentioned metrics as described by Jones to evaluate the trend lived up to its expectation as Nifty took a U-turn from near about the 200-DMA and thereafter went from strength to strength. This was because the bulls recovered much of the lost ground in the last six trading sessions and reclaimed the important psychological level of 11,500. Behind the recent bullish move has been a wind of prospering news which is pointing to a green shoot in economic recovery. Also, there is an assumption that domestic institutions led buying at the dusk of the September month, which is a quarterly closing to window-dress their NAV. This was evident from the net purchases by DIIs in the last week of September when there was good participation from DIIs that consequently turned net buyers during the previous month after two consecutive months of sell-off. The Nifty closed above the 11,500 mark on Monday for the first time since September 18 as it gained nearly 7 per cent from the lower levels of 10,790.
During the current upswing there have been witnessed multiple gaps which includes a runaway gap caused by increased interest in the market and represents the fact that those traders who did not get in during the initial movement of the uptrend while waiting for a retracement in price, decided it was not going to happen. With this the index has reached a very crucial resistance zone – the zone of 11,550-11,620 is a sturdy wall of resistance for the bulls. The formation of the shooting star candlestick pattern near the resistance zone reiterates the importance of overhead resistance. Hence, as long as Nifty is not able to close above this resistance zone, there is a chance of weakness emerging as per the sequence of lower highs. Only a close above the level of 11,620 would negate the sequence of lower highs and could open for a quick upward move of 200 points or towards the swing high of the 11,794 level.
Why is the level zone of 11,550-11,620 a sturdy wall of resistance for bulls? That’s because, if you remember, the big bearish candlestick that was formed on August 31, the 50 per cent retracement level of that big bearish candlestick was around 11,559 levels and the price has been rejected not once but multiple times from this zone. However, on September 16, it managed to close above the 11,600 mark but this proved to be a trap as there was no follow-through day. Hence, we can easily make this out as a strong supply zone and this territory certainly belongs to the bear.
Also, there is one more interesting observation: the current structure of the index rhymes with the price structure which was witnessed during the mid- January to mid-February phase of 2020. On January 20, 2020 Nifty formed a big bearish candlestick and on August 31, 2020 Nifty formed a similar pattern. Post January 20, there were a series of lower top formations and we know what a terrifying fall we witnessed thereafter.
Could we witness a similar kind of situation in the current leg as well? Only time would tell, but we believe volatility would be the name of the game on D-Street as in the coming weeks as a lot of major events are likely to unfold, including the RBI policy followed by a host of key macroeconomic data points like industrial production, CPI and WPI. On the global front as well, the upcoming elections in the US are likely to fan the flames. The immediate support for the index is seen at around the 11,450 levels followed by major support at 11,300. We would advise traders to follow risk management rules as risk is the only thing one can control about one’s trades during such uncertain and volatile times.
STOCK RECOMMENDATIONS
UNICHEM LABORATORIES ................. BUY ................ CMP Rs 273.30
BSE Code : 506690 | Target 1 .... Rs 302 | Target 2 ..... Rs 315 | Stoploss....Rs 252(CLS)
Unichem Laboratories is one of India’s most respected pharmaceutical companies. The company has several pharmaceutical products that address the needs of relevant and growing therapeutic areas like gastroenterology, cardiology, diabetology, psychiatry, neurology, anti-bacterials, anti-infectives and pain management. The stock has jumped nearly 280 per cent from the lower levels of March to register high of Rs 304.70 as on August 4, 2020. After this rapid rise, the stock entered into a corrective decline and this corrective decline halted near 38.2 per cent retracement level of the rise from Rs 130.00-304.70. This is known as shallow retracement. Also, if one analyses the price action, the stock was moving in a band of Rs 235-271 for almost a month and the stock has recently seen a breakout of the flat base pattern with above average volumes. As the stock is trading near its 52-week high, it is above all the short and long-term moving averages. The stock is meeting Mark Minervini’s trend template. The stock is meeting most of the CANSLIM characteristics.
The master score of B is close to being the best. The MAMA-FAMA has given a buy signal on the stock as the MAMA has crossed over FAMA. Considering the robust technical structure of the stock we believe it is likely to touch new highs and hence one can accumulate th is stock with a stop loss of Rs 252 for a target of Rs 302 followed by Rs 315.
DR. LAL PATH LABS ....................... BUY ...................... CMP Rs 1,994.35
BSE Code : 539524 | Target 1 ..... Rs 2,110 | Target 2 ..... Rs 2,180 | Stoploss....Rs 1,830 (CLS)
Dr. Lal Path Labs is a provider of diagnostic and related healthcare tests and services in India. Through its integrated, nationwide network, the company offer patients and healthcare providers a broad range of diagnostic and related healthcare tests and services for use in core testing, patient diagnosis and the prevention, monitoring and treatment of disease and other health conditions. The stock had witnessed a breakout of horizontal trend line as in mid-July and thereafter the stock went on to register an all-time high of Rs 2,029. Post that the stock turned sideways and entered into a corrective decline which halted near the horizontal trend line. Though the price did breach the horizontal trend line on intraday basis, the price kept its head above this horizontal trend line on a closing basis. The concept of change in polarity was on display as the change in polarity principle asserts that once breached, a resistance level becomes a support level. 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. On a weekly basis, the stock is also trading above the 34 EMA ribbon. The 14-period RSI on the daily as well as on the weekly timeframe is trading in bullish territory and moreover, it’s in rising trajectory which reaffirms bullish bias. The MACD is in a rising trajectory as well, suggesting bullish bias. Based on the above observations, we expect the stock to continue its upward movement and test levels of Rs 2,110 followed by Rs 2,180 in the shortmedium term. Stop loss can be maintained at Rs 1,830 on a closing basis.
(Closing price as of Oct 06, 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.