NIFTY Index Chart Analysis

The stock market is hesitant to move on either side since there have been no significant triggers during the last two weeks. The Nifty is still trading between the broad 1,150 point range of 15,431-14,265 since February 16. And the consolidation has been further confined to 14,880-14,460 for the last couple of weeks, barring one or two days. The 14,880 levels have become a Herculean task for Nifty to cross. Since February 16, the average true range (ATR) increased to a maximum level when it reached the lifetime high. The daily ranges have been bigger in the recent past. For several times, the Nifty traded more than the average range. Historically, barring the March 2020 period, the ATR crossed above the 200 level only on a few occasions. 

Since February 3 the ATR is mostly between 240 and 271. These extreme levels of ATR near lifetime highs indicate caution. Apart from the double top and flag pattern mentioned in the last column, the Nifty currently is forming an inverted head and shoulder pattern with the 14,880 level as a neckline. This pattern is clearly visible on lower timeframe charts. A decisive close above 14,880 could result into a powerful bullish breakout.

This inverted head and shoulders pattern imply that the target is 15,495, a little above the lifetime high. However, before achieving the inverted head and shoulders pattern target, the Nifty may face resistance around the levels of 15,000, 15,182 and 15,330. Once these levels are cleared, the pattern target is at arm’s length. Interestingly, the daily RSI has also formed an inverted head and shoulders kind of pattern. A move above 53 is a big positive.

On the other side, the directional indicators are not giving any positive signs. The ADX flattened at the 22.86 level. The -DMI is above the +DMI and the ADX indicates weakness in the trend. The Nifty has been oscillating around the 50 DMA. It has failed to form a decisive bar above the 50 DMA. As a result, it has flattened and has not indicated any decisive trend. On a higher timeframe i.e. monthly chart, the Nifty formed a perfect doji candle in the month of March 2021, indicating indecision at higher levels. The prior two monthly candles also indicated selling pressure at higher levels as they formed long upper shadows.

In the last financial year, the benchmark index gained over 70 per cent with the support of FPI inflows. As discussed earlier, the FPI inflows depend on many global circumstances such as the US 10-year bond yields and the Dollar index as they have an inverse relationship with the equity market. These two cooled off a bit after hitting the 14-month highs. The other key drivers including Nifty Bank are currently underperforming. At the same time, lack of clear leadership from any sectors is another setback for the market. The relative rotation graph (RRG) review shows that there are only two sectors, Nifty Metal and PSU Banks, which are in the leading quadrant.

Though the PSU Bank index is in a leading quadrant, its relative momentum appears to decline. The Energy index is in an improving quadrant and it may enter into a leading quadrant. The worry is that heavyweight sectors like private sector banks, automotive, IT, pharmaceuticals and FMCG sectors are either in weakened positions or lagging quadrants. Currently, the only hope is the Mid-Cap and Small- Cap indices that are seen outperforming the frontline indices. Against this background, the market is in a tricky situation.

The earnings season has already kicked off with some of the heavyweights from IT likely to announce their results in the coming week. A lot would depend on how the earnings from heavyweights unfold. If the index needs to move to further highs, the market needs greater earnings’ improvement. As the price-earnings calculation has changed to consolidated earnings, Nifty PE has come down from 40.35 to 33.18. Even this figure is much higher than earlier tops in 2000 and 2008. Watch this important fundamental factor.

From now onwards the focus should be on stocks reporting consistent growth of over 20 per cent on the earnings front. The pandemic’s second wave is on a rampant spree and the staggering lockdowns are back now. Expect the index to remain volatile as the market participants would try to gauge the impact of the new restrictions imposed by several state governments to curb the spread of the virus. In addition to this, the other external risk factor is state assembly elections where the ruling BJP party’s stakes are very high. The outcome of the elections would be closely monitored by market participants.

STOCK RECOMMENDATIONS

TATA CONSUMER PRODUCTS ................. BUY ................. CMP Rs 674.15

BSE Code : 500800
Target 1 : Rs 756
Target 2 : Rs 788
Stoploss : Rs 621 (CLS)

Tata Consumer Products is a focused consumer products’ company and the second-largest player in the branded tea segment. The company has brought all the food and beverages items of Tata Group under its umbrella. It has grown through innovation, strategic alliances and acquisitions. Joint ventures with Starbucks and PepsiCo India have helped it create a niche presence in the market. Technically, the stock has broken out of a Stage 2C six-week flat base. It is trading at a lifetime high. The stock is meeting many of the CANSLIM characteristics. It has good EPS strength at 87 and relative price strength (RS) is at 73. The stock is trading about 10 per cent above the 50-DMA and about 26 per cent above the 200-DMA. The weekly MACD has given a fresh buy signal. The 20-period RSI (69.99) is in a super bullish zone and has witnessed breakout of a double bottom pattern. The ADX (40.01) is above the +DMI, and -DMI shows a stronger strength in the trend. The Elders impulse system is showing a bullish structure. In short, the stock has registered a fresh bullish breakout. Buy this stock in the zone Rs 655-675 with a stop loss of Rs  621. The short-term target is placed at Rs 756 and medium target is at Rs 788.

LAURUS LABS ......................... BUY ............................. CMP Rs 396.75

BSE Code : 540222
Target 1 : Rs 465
Target 2 : Rs 500
Stoploss : Rs 362 (CLS)

Laurus Labs is a leading research-driven pharmaceutical manufacturing company. It is engaged in the manufacturing of APIs, anti-retroviral, oncology, cardiovascular, anti-diabetic, anti-asthma and gastroenterology drugs. It has state-of-the-art research and development and manufacturing facilities in Andhra Pradesh. It has a leadership position in various high-value and high-volume APIs with a sizeable global market share. It has commercialised over 60 products. Technically, the stock has broken out of a 10-week Stage 2B flat base with an above-average volume. As the stock is at lifetime highs, the price is above all short and long-term averages. It is meeting all Mark Minervini’s trend template rules as the 10, 30 and 40 weekly averages are trending up. Currently, the stock is trading about 9 per cent above the 10-DMA. The 20-period RSI is above 72 and has broken out of a bullish wedge pattern. The weekly MACD is about to give a buy signal. The ADX is strong enough at 34.4 and above the +DMI, and –DMI, indicating strong bullish strength in the stock. The Elders impulse system has also given a buy signal. The relative price strength is also as high as possible at 93, which means the stock is performing greater than 93 per cent of the listed stock. Buy this stock with a stop loss of Rs 362. The target is open to Rs 465 in the short term and Rs 500 in the medium term.

*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 Apr 6, 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.