NIFTY Index Chart Analysis : CHARTS SAY ‘DONT FIGHT THE TREND
There seems to be no stopping the market bulls. The benchmark Nifty 50 on Monday hit a fresh all-time high of 13,597.50 mark amid relentless buying by foreign portfolio investors (FPIs). Further, the sentiment remained buoyant spurred by the progress on the vaccine front, flattening of the corona virus curve on the domestic front, indications of V-shaped recovery of economic activity in the country and also by India’s retail inflation which showed signs of easing out in the month of November India’s markets have outperformed Wall Street hands down with Nifty recording gains of nearly 5 per cent month till date. However, the journey for the bulls has not been easygoing as in recent days the bears have tried every trick in the book to bring down the bulls. But, do remember the bulls have a trump card of liquidity as their tailwind which has kept them in the driving seat and never let them down.
The tough battle between the bulls and bears can be clearly visible on the price chart. As we have seen, a series of indecisive candle formations have appeared on the chart. On Tuesday, the price action yet again formed an indecisive candle and this was the fourth straight session were we have seen the formation of an indecisive candle. Also, if we club the last three trading sessions’ candle formation, we would get a very rare pattern on the chart as in a ‘tri-star’ pattern. This is not a perfect textbook tri-star pattern but just resembles it. The occurrence of this pattern is very rare but it should not be ignored. As per the thesis, the psychology behind this pattern is that the index has been in an uptrend for a long time. With the trend starting to show weakness, bodies probably are becoming smaller. The first Doji would cause considerable concern. The second Doji would indicate that there was no direction left while the final Doji would hammer the final nail in the coffin of the trend. Overall, it indicates too much indecision. But if we look at the other side of the coin, it presents a contrasting view. As of November 26, the price has never closed below the prior bar low and in the last four trading sessions’ formation the long lower shadow signals the emergence of buying interest after intraday weakness. This is positive indication and signals chances of further up-move in the short term. Let’s look at what the moving averages are indicating.
On Tuesday, Nifty took support at 8 EMA and closed above the 5 EMA. The 5 EMA has acted like a sheet anchor for the bulls and it continues to act so. Further, Nifty is trading 3 per cent above the 20 DMA. Generally, the price has a tendency to revert to its mean and there are two ways of reverting: one is the correction in price and the second is time correction where the price consolidates and the moving average shifts higher. In the current scenario, we are seeing the second case playing out as the index is witnessing time correction and the moving average is shifting higher. During this time correction phase, the level of 13,400 is crucial support for the index as a close below this level would give us the first indication that the bears are putting their foot in the door and the next support is seen in the zone of 13,100-13,200. On other hand, a close above the 13,600-13,650 would result into a fresh breakout of range and the index may move up to the level of 13,840 in the short term. Overall, the markets are in a breather phase and the price suggests that the bulls have an edge.
Currently, the Nifty is trading at 37.31 price-earnings ratio, which is almost touching four standard deviation levels. In spite of what appears to be extended valuation and some warning signs from naysayers, the lack of clear sell signals on the charts with overall positive breadth implies that we should not fight the current trend but keep a near-term ‘neutral or positive’ outlook for the indices intact. Sector rotation and funds’ flow will be crucial drivers for the next week as there are no negative triggers at present. But at the same time don’t get complacent and maintain strict stop losses for all trading positions.
STOCK RECOMMENDATIONS
NELCAST ............................... BUY .............................. CMP Rs 64.30
BSE Code : 532864
Target 1 .... Rs 75
Target 2 ..... Rs 80
Stoploss....Rs 59 (CLS)
Nelcast is the largest jobbing foundry in India for the manufacturing of ductile and grey iron castings. Its products cater to the global automotive, tractor, construction, mining, railways and general engineering sectors. After a strong up-move the stock entered into a period of consolidation. And this consolidation phase was characterised by equal highs with a series of higher bottoms, as a result of which the stock formed an ascending triangle like pattern. Furthermore, the breakout of this pattern is seen on the back of above average volumes, which reaffirms that the breakout has been backed by buying interest. Along with the breakout, the upper Bollinger Band has started to expand, which is positive for the stock. The rising 20 DMA confirms that.
The stock is trading above the 10 SMA and 20 and 30 EMA. It is meeting the Dave Landry’s bow-tie setup. Further, the stock is meeting Mark Minverni’s trend template. It is trading above the 40, 30 and 10-weekly moving averages and all of them are trending up. At the same time there is a desired sequence. The stock is clearly uptrend and the trend strength is extremely high. The Average Directional Index (ADX), which shows trend strength, is as high as 48.44 on the daily chart and 46.02 on the weekly chart. Generally, above 25 levels is considered as a strong trend. In both timeframes, the stock is meeting the criteria. Also, the +DMI is above the –DMI line. One more interesting observation is that the ADX on the weekly chart is trading above the 25 level since last week of August. All in all, the stock has a great potential to test levels of Rs 75-80 in the medium term and one can maintain a stop loss of Rs 59 on a closing basis.
NESTLE INDIA ............................ BUY ...................... CMP Rs 18,191.75
BSE Code : 500790
Target 1 ..... Rs 19,750
Target 2 .... Rs 20,200
Stoploss....Rs 17,200 (CLS)
The company is engaged in the food business. It manufactures products under various brand names such as Nescafe, Maggi, Milky Bar, Milo, Kit Kat, etc. The stock has witnessed breakout of 33-week-long consolidation pattern. As the stock is trading close to its all-time high levels, it is above all the short-term and long-term moving averages. 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.
The stock is meeting most of the criteria of the CANSLIM methodology. The MACD line is above the signal line and zero line. The RSI is in a bullish territory in all the timeframes. The +DMI is above the -DMI and the ADX are also showing bullish strength in the stock. Pring’s KST also has given the buy signal and Elders’ impulse system is also signalling a bullish view. Considering the above factors, we recommend buying this stock with a stop loss of Rs 17,200 for a target of Rs 19,750 followed by Rs 20,200.
(Closing price as of Dec 15, 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.