NIFTY Index Chart Analysis : MARKETS HIGH ON ADRENALINE

All-time high is coming soon is what we had hinted in our last Nifty analysis and here we are today, the forecast having proven true. The phrase ‘market hit a new peak’ has become such a standard remark now that the bulls have surged like there is no tomorrow. The Nifty has soared nearly 10 per cent in the last two and half weeks and touched a high of 12,934. This has been on the back of consistent flows form FIIs, better than expected corporate results, and a large boost of confidence injected after Moderna announced promising third phase trial for its vaccination candidate. The FIIs have pumped an inflow of over Rs 38,000 crore in the month of November so far, which is a record monthly inflow from the FIIs. Meanwhile, the DIIs have been selling heavily, but the strong support of inflows from FIIs is overpowering this. 

The strong inflow from FIIs could be attributed to the collapse of the Dollar Index. As long as it remains in a bear grip, FIIs inflow is likely to come in. Apart from the FIIs flow, the banking index, Bank Nifty, has been a major contributor in the index movement, having jumped 22 per cent in the month of November so far. Meanwhile, the index heavyweight Reliance Industries has tumbled 3 per cent as of now in the month of November. The stock recently bounced from its important moving average of 200-EMA and currently the stock is comfortably placed above its 200-EMA. Hence, if the king moves below its 200-EMA, it would be a big concern for the markets. The Nifty started off the week on November 9 with a huge gap-up. Further, all the dips bought in buyers during the week as it avoided closing below the prior day’s low. This led to formation of a second sizeable bullish candle on the weekly chart, known in technical parlance as a rising window, as there was a gap-up action and a rising window is classified as a bullish continuation pattern. 

Interestingly, on the weekly chart, Nifty has managed to close above the upper Bollinger Band and that too with a sizeable portion of the body of the candle outside the upper Bollinger Band – this being a rare occurrence. However, after a mammoth move of over 10 per cent in a short period of time, the bulls are definitely looking tired on the daily chart and this could be seen from the fact that in the ‘mahurat’ trading session Nifty opened higher but managed to close below its open low, and similar action was followed on Tuesday as well. 

Further, on Tuesday, the index formed a Hanging Man pattern, which is usually formed at the end of the uptrend or at the top. Hence, after the overstretched nature of the current rally and with many indicators placed in overbought territory along with a formation of Hanging Man, there is indication that consolidation or a counter trend rally may be in the offing. However, it would not be prudent to be bearish as the dips are likely to be bought until the index actually starts closing below the prior day’s low. For the near term, a level of 12,735 is likely to act as a support area and a close below this would result into an extended correction towards the level of 12,450. On the upside, Nifty is likely to face resistance at the levels of 13,000-13,220.

The Nifty-500 index has is certainly attracting a lot of attention as it has broken out of horizontal resistance and entered into uncharted territory. A component of this index is a mix of large, mid and small-cap stocks as many stocks are making new 52-week highs every day, indicating that overall smart money is accumulating in a majority of the stocks. Identify stocks which show decent earning growth and are breaking out of basing formations. 

Meanwhile, on the fundamental side, the markets are trading at an historical high PE. The high PE is the new normal, but on the other hand the price to book value is also not in a comfortable place. The index is trading at a ratio of 3.64 PB and in the past we have seen that whenever it attempted to reach a level close to 4, it has reacted lower. So better to focus on stock-specific action and also trail your stop loss for long positions. 

STOCK RECOMMENDATIONS 

HIL .......................BUY ................. CMP Rs 2,038.20

BSE Code : 509675
Target 1  : Rs 2,300
Target 2  : Rs 2,440
Stoploss :Rs 1,790(CLS)

Established in 1946, HIL is a flagship company of the USD 2.4 billion conglomerate, CK Birla Group. The company has been offering comprehensive building materials and solutions for 70+ years and has achieved market leadership by developing and marketing the most sustainable and relevant products which are future-ready, of high quality, and have innovation at its core. The stock has almost trebled from the March lows. It is clearly in a confirmed uptrend as the stock has been making higher highs and higher lows from March lows on the weekly chart. The stock has recently witnessed breakout from a stage-one consolidation base on the back of robust volume. Moreover, during the base formation, down days’ volume was lower, which is a healthy sign. Further, the stock has moved out of the Bollinger Band squeeze and on the daily chart it is walking on the bands, which again is a positive signal for the stock. The stock is meeting most of the criteria of the CANSLIM parameter. The price relative strength (RS) is as high as 91, which is great, indicating its outperformance as compared to other stocks and the EPS strength is at 99 which is again great, indicating consistency in earnings. The increasing buyers’ demand shows that institutional investors are actively accumulating the stock. The RSI in all the timeframes is in a bullish territory and the trend strength is extremely high as shown by the ADX which is 40.96 on the daily chart and 44.33 on the weekly chart. Generally, above the 25 level is considered as a strong trend. In both timeframes, the stock is meeting the criteria. Further, +DI is above the – DI. Buy the stock with a stop loss of Rs 1,790 for a target of Rs 2,300 followed by Rs 2,440 in the long run.

KNR CONSTRUCTION ................. BUY .......................... CMP Rs 260.60 

BSE Code : 532942
Target 1 : Rs 298
Target 2 : Rs 310
Stoploss : Rs 252 (CLS)

KNR Construction is a multi-domain infrastructure project development company providing engineering, procurement and construction (EPC) services across various fast-growing sectors such as roads and highways, irrigation and urban water infrastructure management. 

The stock has witnessed a rapid movement of 40 per cent in just 12 trading sessions during the month of August 2020. Thereafter, the stock has seen oscillating in a range without any decisive movement while this sideways movement of the stock retracing nearly 61.8 per cent of upward movement was seen in 12 trading session of the month of August 2020. Currently the stock is giving early signs of maturing of a consolidation phase and once again it is heading for a rapid movement. The stock was into a Bollinger Band squeeze for a long period and now we are witnessing opening up of the squeeze. Further, the RSI on the daily chart for the first time after mid-September has crossed the 60 mark. The stock is meeting majority of the criteria of CANSLIM as the EPS strength score is great at 97 and the buyer demand is also great at ‘A’. Currently, the stock is forming a base in its weekly chart and is trading around 6 per cent away from the crucial pivot point. As the stock is trading above its 10 SMA, 20 and 30 EMA, it is also meeting the Bowtie Moving Average Pattern. One can initiate a long position for a target of Rs 298 followed by Rs 310 with a stop loss of Rs 252.
(Closing price as of Nov 17, 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.