NIFTY Index Chart Analysis : MARKETS INCHING TOWARDS IMPROVEMENT

NIFTY Index Chart Analysis : MARKETS INCHING TOWARDS IMPROVEMENT

Just as every dark night is followed by a bright morning, the Indian markets have moved out of the shadows after a witnessing a massive fall last Thursday. In fact, the fall was quite drastic in nature, evident from the fact that the daily range of the candle was 364 points higher than its 10-day average. Thursday's fall was similar in nature to the one witnessed on August 31. The structure after that fall on August 31 was similar to what has happened now. The index pulled back for three sessions at that time and similarly, from last Thursday the index continued its pullback for the third straight session on Tuesday. However, price-wise, post August 31 the index retraced nearly 50 per cent or up to the mid-point of the massive bearish candle. However, in the current scenario the price has retraced nearly 78 per cent from last Thursday’s massive fall. On Tuesday, Nifty formed a shooting star pattern near the 78 per cent retracement level of the recent fall. And the index is still trading within last Thursday’s bearish bar range. But now the big question is: will Nifty be able to surpass last Thursday’s high of 12,025 or repeat the earlier scenario, where after a pullback of three days, it nosedived?

A lot would depend on the gap area of October 19 (11,789-11,820). If the bulls manage to hold above this level, then it would be mean that the bulls won’t let the bears take over so easily. Hence, the zone of 11,789-11,820 would be a crucial support area in the near term as breach of this region would open gates for correction towards the 11,660-11,600 level. On the upside, the bulls need to sustain above the level of 11,950 for the continuation of the upward movement. Hence, Wednesday’s session would be crucial to watch out to check whether history repeats itself or bulls rewrite the history. There is one interesting development going on in the markets for the last couple of the days. The market breadth is showing signs of improvement and the broader market indices are buzzing. Let us analyse the chart of Nifty Mid-Cap and Nifty Small-Cap. The former rallied almost 8 per cent in just seven trading sessions from its September low. Thereafter, it entered into a corrective phase and the index corrected almost 61.8 per cent as well as it filled the majority of the gap of September 28. Further, the index formed a hammer-like pattern on Friday. So, the formation of a hammer around the gap area supports and near about 61.8 per cent it reinforces the credibility of the support. Adding to the chorus is the slower pace of retracement i.e. the mid-cap index rallied almost 8 per cent and the current corrective decline, as mentioned, retraced nearly 61.8 per cent of the recent upward movement. This retracement was witnessed in over seven trading sessions; thus, this is a slower pace retracement. 

Amidst these bullish factors, there is certain evidence indicating that the upward movement would not be of significant magnitude as the zone of 17,450-17,550 is a strong supply zone. Further, the range shift is seen on RSI on the weekly chart after falling below the 60-mark and in the recent move, the index has failed to cross above the 60-mark and changed its trajectory in the downward direction. The Nifty Small-Cap index too formed a hammer pattern on Friday and it has managed to hold above the gap area of September 28. It has also managed to reclaim its 20 DMA. Nifty Small-Cap is better placed and it is nearing a breakout point of a symmetrical trianglelike pattern. If it breaks out and sustains higher it has the potential to test levels of 6,033-6,083. This region is a sturdy wall of resistance. With the strong pillars of the current rally i.e. Nifty IT and Reliance Industries taking a back seat and the broader indices showing a glimpse of promising signs, it’s time for them to put up their hands and support the bulls.

Further, in view of the US presidential election in the first week of November and the Q2 earnings season on the domestic front, traders should keep a close eye on India VIX as well, as for the first time after the last week of April it has moved above the 10-week moving average and now 24 is an important level to watch out for. Any move above this level would lead to a breakout of the nine-week range and this would be the first indication that the market is sensing some uncertainty in the near term. 

STOCK RECOMMENDATIONS 

MATRIMONY.COM ...................... BUY .......................... CMP Rs 671.85 

BSE Code : 540704
Target 1 : Rs 770
Target 2 : Rs 800
Stoploss : Rs 640(CLS)

Matrimony flagship brand Bharat Matrimony is the largest and the most trusted as per the Brand Trust Report 2014. The company provides both matchmaking and marriage-related services through websites, mobile sites and mobile apps. The stock had witnessed breakout of Stage 1 consolidation pattern in early October 2020. The pattern had a depth of 20 per cent. Post the breakout the stock went on to touch the level of Rs 770 at quick speed. At present, the stock has re-tested the breakout point of Stage 1 consolidation pattern and interestingly the stock has managed to hold above the 20 DMA. Further, the stock has formed a spinning top like pattern as on October 20, which indicates that the bears are losing control and bulls make take reins. 

The stock is meeting most of the CANSLIM characteristics. The relative price strength is at 87, which is good indicating outperformance as compared to other stocks. The buyer demand is great at ‘A’ which is evident from the recent demand for the stock. The group rank stands at 40, which is good indicating that the stock belongs to a strong industry group of internet content and a master score of ‘B’ is close to being best. 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. Considering the above factors, we expect the stock to test levels of Rs 770 followed by Rs 800 in the medium term and one can place a stop loss of Rs 640 for the long position. 

JINDAL STAINLESS (HISAR) ...................... BUY .................. CMP Rs 99.10 

BSE Code : 539597
Target 1 : Rs 110
Target 2 : Rs 122
Stoploss : Rs 88 (CLS)

The company is a market leader in the domestic stainless steel market with a wide value-added product portfolio. It operates a stainless steel plant with a melting capacity of 8,00,000 TPA at Hisar, Haryana, the world’s largest producer of stainless steel strips for razor blades and India’s largest producer of coin blanks. The stock had made a high of Rs 109.75 in the month of August. Post that the stock entered into a corrective phase and this has taken the shape of a cup pattern. The stock is currently trading 7 per cent away from it crucial pivot point and is meeting all the CANSLIM characteristics barring the master score. 

Its relative price strength is as high as 86 which is good indicating outperformance as compared to other stocks, while the EPS rank of 84 is good too and indicates consistency in earnings. The great buyer demand ‘A’ indicates institutional interest in the stock and the group rank of 22 indicates it belongs to a strong industry group of steel producers. Also, the stock is meeting the criteria of the bow-tie setup which is used by Dave Landry. The leading indicator RSI is in bullish territory. As the technical parameters stand attractive and are backed by improving fundamentals, we believe this stock has the potential for delivering good gains in the short-medium term. Targets on the upside can be seen at around Rs 110 followed by Rs 122 in the long run. Stop-loss can be maintained at Rs 88 on a closing basis. 

(Closing price as of Oct 20, 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. 

 

 

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