NIFTY Index Chart Analysis : STAY ON THE SIDELINES
The Indian stock market has struggled to move higher because of several factors, including the rise of crude oil, US bond yields and the Dollar index. As these are having an inverse relationship with FIIs flows, the market remained worried about the sustained demand for stocks. After aggressive buying in the months of December and January, the FIIs have turned cautiously optimistic for almost the last month. FII inflows have been a major driving force in recovery since the lows of March. As the benchmark index doubled from the March low of 7511, market participants turned a bit cautious about any further bullishness. The Nifty has been trading in the range of 14,467-15,431 for the last four weeks. In this 1,000 points range, the Nifty opened with either a gap up or a gap down. Several such gaps since the general budget have made positional traders jittery. During last week, the Nifty formed an inside candle (body of the candle was inside the prior bar) with a long upper wick. Though it closed positively, it retraced back more than 50 per cent from the weekly highly, thus indicating selling pressure at higher levels.
The bearish engulfing implications are still valid. For the last four days, it has been moving in a lacklustre fashion and taking support around 8 EMA. On the daily chart it has closed above the prior day high and 20 DMA on Tuesday. The contracting Bollinger bands indicate that the consolidation may extend for some more time. The 50 DMA is placed about 3 per cent below the price and is trending up. The Nifty has been oscillating around 20 DMA for the last six days and the 50 DMA has worked out as strong support in the recent past.
A decisive close above the recent swing of 15,273 may lead to the resumption of a trend. There are two historical evidences haunting the market now. One is that whenever the Nifty has doubled from the bottom, it has corrected an average of 25 per cent from the top. Since the March low of 7,511, the Nifty has reached the level of 15,431. Thus, as the index has doubled from the lower levels, the bulls are seeing turning cautious. The second evidence is that whenever the Nifty has formed a bearish engulfing pattern at lifetime highs on a weekly chart, it has corrected significantly.
It has formed a bearish engulfing pattern during its recent lifetime high and has seen confirmation as well of the bearish engulfing pattern on the weekly chart. These two factors are currently acting as a barrier to the fresh bullish stance. Despite the warning signs emerging, as a trend follower we cannot be completely bearish as the Nifty has not made any significant lower low. It may look like exhaustion at the current levels; it needs to form a lower low below the 14,467 level. Then we can consider the March 3 high of 15,273 as a lower high. As long as it trades between these levels, it is better wait for clarity instead of opting for an aggressive position.
On the indicators front, the weekly MACD line is above the signal line but the histogram has been receding for the last seven weeks, thus indicating waning bullish momentum. On the daily chart, the directional indicators are showing a neutral stance. The mid-caps and small caps have been outperforming the large-caps for the past few weeks. But the Nifty Mid-Cap 100 and Small-Cap 100 indices have also formed exhaustion bars on the daily chart during the current week. As the benchmark has index lost its momentum, the broader indices are looking tired and now it has become a highly stock-specific market.
The relative rotation graph (RRG) shows that these are the only sectors which are in a leading quadrant – Auto and PSU Bank. The earlier leading sectors in the recent past, namely, IT, private banks, financial services, metal and reality drifted down into a weakening quadrant. With the crude oil prices rising, only the energy sector index was in the improving quadrant. Watch for dollar and US bond yield movements for the next two weeks for any equity market direction clues. Most of the equity markets may enter into a consolidation phase. Wait for a decisive breakout; until then stay on the sidelines.
STOCK RECOMMENDATIONS
HDFC LIFE ................ BUY ................CMP Rs 739.80
BSE Code : 540777
Target 1 .... Rs 771
Target 2 ..... Rs 800
Stoploss....Rs 712 (CLS)
HDFC Life is considered one of the leading life insurance players in the private sector. The company offers a range of individual and group life insurance solutions. It had AUM of Rs 1,31,000 crore at the end of Q2FY21. It has operating revenue of Rs 1,649.84 crore on a trailing 12-month basis. Its annual revenue growth of 1 per cent is not great, pre-tax margin of 79 per cent is great while ROE of 19 per cent is exceptional. Technically, the stock has broken out of a six-week flat base pattern and is trading at a new lifetime high. It is trading above all the averages, and interestingly, each moving average is trending up.
After breaking out of an inverted head and shoulders pattern in November, the stock has registered flat base breakouts. On a weekly chart, the ADX is above 28.29 and this shows trend has strength. Further, ADX is above the +DMI and -DMI. The RSI is in a super bullish zone. On the daily chart, the stock has broken out of an ascending triangle. A sustained move above Rs 731 is positive for the stock. The short-term target is placed at Rs 771-800. Maintain a stop loss at Rs 712. At a level of above Rs 800, continue with a trailing stop loss.
IRCTC ......... BUY ............. CMP Rs 2,025.55
BSE Code : 542830
Target 1 : Rs 2,155
Target 2 : Rs 2,200
Stoploss : Rs 1,920 (CLS)
IRCTC is a central public sector company under the control of the Ministry of Railways. It provides online railway ticketing and catering services to the Indian Railways. In fact, it is the only entity allowed by Indian Railways to provide ticketing and catering services. The company has operating revenue of Rs 1,031.15 crore on a trailing 12-month basis. Annual revenue growth of 20 per cent is outstanding, pre-tax margin of 33 per cent is great while ROE of 39 per cent is exceptional. The company is debt-free and has a strong balance-sheet. The IRCTC stock is trading at a new high.
After emerging out of a 12-month long consolidation, the stock has broken out sharply. After two weeks of consolidation, it is again moving higher with a higher volume. Currently, after a brief consolidation, the stock has closed at a new lifetime high. The RSI is at 78 and it may continue for a longer period in the overbought zone. The ADX (54.95) is above the +DMI and -DMI is a bullish sign. MACD shows bullish momentum. All the indicators are positive. Elders’ impulse system and Pring’s KST have been showing bullish signals. A sustained move above Rs 2,025 is positive and it can test Rs 2,155 in the short term. Maintain a stop loss at Rs 1,920. Above Rs 2,155, continue with a trailing stop loss.
*LEGEND: EMA - Exponential Moving Average. MACD - Moving Average Convergence Divergence RMI - Relative Momentum Index ROC - Rate of Change n RSI - Relative Strength Index
(Closing price as of Mar 09, 2021)
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.