NIFTY Index Chart Analysis : Will December Live Up To Its Expectation For The Bulls?

NIFTY Index Chart Analysis : Will December Live Up To Its Expectation For The Bulls?

As is said, one life is not enough to experience everything. But in the market it has proved to be otherwise. We started the year with the Nifty scaling to all-time highs, but soon the pandemic outbreak resulted into a sharp collapse of the markets. During this period the markets hit lower circuit limits. However, just as there is light at the end of a tunnel, from its March lows the markets did not look back and went from strength to strength to attain high all-time highs. Thus, in 2020 we have seen it all! A massive bear market which was followed by a spectacular bull run. The year 2020 has defied all the rules and that is enough to sum up how unique the year has been.

The month of November was a historic one as the Nifty recorded gains of 11.4 per cent. It has been the best month after April 2020 and if we don’t count the 14.68 per cent gain in the month of April, 2020, it is the best month since January 2012. The broader indices which outperformed Nifty as Nifty Mid-Cap and Nifty Small-Cap jumped 15.52 and 12.96 per cent, respectively, with the Nifty Mid-Cap recording its best monthly gains since January 2012. Right from the beginning of the month, stocks got a boost from economic recovery followed by the election results in the US and with the hope that a vaccine was close to gaining approval.

Further, the rally was supported by immense liquidity as FIIs pumped in a record 65,000 crore of funds in the equity markets and if you recall we had mentioned about this as there is an inverse relationship between FII flow in the Indian markets and the dollar index. With a blissful performance in the month of November, December too began on a prosperous note with Nifty logging a record high closing as it gained over 1 per cent. With this the Nifty is up about 7.76 per cent on YTD basis. Going ahead, the all-time high level of 13,145 is a crucial level to watch out for.

Why do we say so? Nifty had formed a bearish engulfing pattern as of November 25. Thereafter, Nifty has failed to show any bearish implication. It is trading within a striking distance of the all-time high level of 13,145, which also happens to be a high point of the bearish engulfing pattern. At the same time, last week’s Doji formation on the weekly chart has similar highs. So if the bulls move above the 13,145 level it would be like killing two birds with one stone. Firstly, it would be negating the bearish engulfing pattern of November 25 and at the same time the Doji formation of the weekly chart would also be challenged. 

So sustaining above the level of 13,145 would open the gates for the targets of 13,350 and 13,500 in the short term. The structure of the markets is certainly in favour of the bulls as the structure of higher highs and higher low is intact on the higher timeframe. But at the same time, the momentum is showing signs of a breather as all the indicators are coming out of an overbought condition. There is a negative divergence on RSI on the daily chart, and on the lower timeframe there is an interesting observation that Nifty is moving in an upward channel and the RSI is moving in a downward channel.

The RSI would come out of the downward channel if it moves above the level of 73. On the downside, immediate support for the index is seen around the 12,900 mark and breach of this would open the gates for further correction towards the 12,670-12,765 levels. This zone is the confluence of 20 DMA and 23 per cent retracement of the up move which started from 11,535 levels. Coming back to seasonality analysis, December has been the best month by average returns. From 1996 to 2019 the month of December has recorded an average return of 3.43 per cent and with a positive ratio of 75 per cent. If once again December lives up to its expectation of a month of joy and happiness for the markets, then certainly Nifty will get a positive close for the fifth year in succession. The highest so far the Nifty has recorded is six years in succession from 2002-2007. 

STOCK RECOMMENDATIONS 

WELSPUN CORP ........ BUY ............. CMP Rs 125.55

BSE Code : 532144
Target 1 : Rs 137
Target 2 :Rs 145
Stoploss: Rs 115 (CLS)


Welspun Corp offers a one-stop solution in line pipes with a capacity to manufacture longitudinal (LSAW), spiral (HSAW) and HFERW or HFI (ERW) pipes. The stock recorded a low of Rs 55 in May and thereafter it witnessed a ferocious run of 119 per cent in just 12 weeks. Post this strong run-up, the stock entered into a consolidation phase. The stock then moved in the range of Rs 122-96 in the next 14 weeks. During this period, the volumes on the down bars i.e. the red bar were lower, while on the green bars the volumes were higher, which indicates that accumulation was going on. Further, during the consolidation phase the 21-week EMA provided good support to the stock. Currently, the stock has witnessed breakout of Stage 1-B consolidation phase and is trading nearly 1.5 per cent higher from the pivot point, which is the ideal buying range for the stock. As the stock is trading above the 10 SMA and 20 and 30 EMA it is meeting the ‘bow tie’ setup. Meanwhile, the ADX at 25 indicates strength in the current trend and the +DI is comfortably above the –DI and ADX. The RSI on the daily chart has entered into overbought territory but shows no sign of exhaustion as it is in rising trajectory. In a strong uptrend the RSI has a tendency of exhibiting overbought characteristic near the 80 level. All in all, the stock is perfectly set to resume its uptrend and touch levels of Rs 137-145 in the medium to long term. Stop loss for the trade should be placed at Rs 115 on a closing basis. 

SUN PHARMACEUTICALS ................ BUY ................... CMP Rs 539.75

BSE Code : 524715
Target 1 : Rs 565
Target 2 : Rs 578
Stoploss:Rs 516 (CLS)


Sun Pharmaceuticals is the world’s fourth-largest specialty generic pharmaceutical company and India’s top pharmaceutical company. Its global presence is supported by manufacturing facilities spread across six continents and approved by multiple regulatory agencies, coupled with a multi-cultural workforce comprising over 50 nationalities. The stock has moved above the critical resistance as it has witnessed a breakout of an inverted head and shoulder-like pattern. It’s not a perfect textbook inverted head and shoulder pattern but its structure resembles this pattern. The breakout of head and shoulder pattern was witnessed on back of robust volumes.

Along with this, the Elder Impulse System has generated a buy signal. The stock is decisively trading above the 34 EMA ribbon. The MACD line is above the zero line and the histogram is indicating pick-up in the momentum. The RSI has moved above the 60 level on the daily timeframe for the first time since last week of August, 2020. The ADX has started to trend up, which indicates improved trend strength. The +DI is above the –DI line, which is positive for the stock. Overall, as the stock has witnessed breakout of pattern on the back of robust volume it could see fresh strength and this could take it towards the level of Rs 565 followed by Rs 578. Stop loss of this trade is Rs 516 on a closing basis.

(Closing price as of Dec 01, 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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