NIFTY Index Chart Analysis : CONSOLIDATION IS THE KEY
As of now, consolidation continues in the market which is hesitant to make any decisive moves. After 1,000 points’ consolidation during March-May this year, the current consolidation is much tighter in range. Barring a few days of intraday breaches, benchmark index Nifty mostly traded within the 15,635-15,900 zone. This very narrow range with low volatility is an indication of a storm brewing on the sidelines. As we do not know the bias of the breakout, we better apply better risk management in place. During the ongoing consolidation, Nifty has been hovering around just half a per cent distance from its important moving average i.e. 20-DMA.
It is also trading 2.27 per cent above the 50-DMA. For the first time after November 2020, the Bollinger bands contracted for a much longer period. The distance between the price and the 50-DMA is declining. There are four distribution days currently. As the Nifty has already spent a lot of time at its lifetime high, it is approaching the maturity of a consolidation or a shallow price action. There are two ways to understand the current price action. The prolonged consolidation signifies a strong base at the 15,635 level. Whenever the price has reached near this support level, it has formed a lower shadow which is then followed by a sharp bounce-back.
Meanwhile, lack of faster retracement during the decline also signifies that the bulls are not ready to give up and the bears are not able to take a commanding position. The Nifty has not even retraced 23.6 per cent of the prior uptrend from its April lows. The medium-term trend indicator 50-DMA is still trending up. Though the 20-DMA is slightly down, it is mostly flat as the price is hovering around it. Currently, Nifty is trading just above the midpoint of the consolidation zone. These are positive things with a positive bias in the market. A decisive close above 15,900 would open the gates for a sharper move where the Nifty is likely to test the level of 16,223.
On the other hand, Nifty has failed to surpass the 15,900 level even after six attempts. Generally, seventh resistance is very rare. Sooner or later, it has to resolve out of this range; hence, it’s time to pay attention to the price action and the 15,900 level. The negative divergence in the leading indicators is a cause of concern for now. The RSI is struggling to sustain above the 60 zone. The index is moving in parallel tops and bottoms and the RSI is moving in lower tops and bottoms, which is a Class B divergence and has medium bearish implications.
The Nifty is sustaining below the upward trend-line drawn from the March 2020 lows. Unless the index trades decisively above this rising trend-line, the index will consolidate further. This long 45-degree trend-line also acts as resistance. If the index fails to cross the resistance line which is incidentally placed at the recent high of 15,900, expect some correction in the near term. This correction could extend towards the 23.6 per cent retracement level (15,499), which is also a prior swing low. However, in any case, with a decline below the 15,499 level, the next level of support is placed at 15,240.
The volumes and the volatility tell a different story. The low volume and the low volatility period will not give good trading opportunities. Institutional participation has been at the lowest level in the recent past. Meanwhile, the additional liquidity in the system and increase in retail participation is helping to sustain the market at the top. The contraction phase of volatility is an indication of a faster or swift move on the cards in the near future. This faster or swift move would result into a breakout on either side of the range as the current consolidation is in a rectangle, which is neither bearish nor bullish. As a trader, one has to wait for a breakout and trade accordingly. Any aggressive position on either side is not advisable at the moment. The sideways phase of the market is quite an intimidating one for a trend trader.
STOCK RECOMMENDATIONS
GLAND PHARMA LTD. .................... BUY ...................... CMP Rs 3,681.65
BSE Code : 543245
Target 1 : Rs 3,894
Target 2 : Rs 4,440
Stoploss : Rs 3,550 (CLS)
Gland Pharmaceuticals began its journey as a contract manufacturer of small volume liquid parenteral products. Now it is one of the largest and fastest-growing injectable-focused companies with a global footprint across 60 countries. The company operates primarily under a business to business (B2B) model and has an excellent track record in developing, manufacturing and marketing complex injectables. It has a manufacturing base with an installed capacity of 750 million units per annum spread over seven facilities. Technically, the stock is meeting William O’Neil’s new listing entry rules. After listing, it rose by 65 per cent from the listing price. Later it entered into a consolidation phase, where it corrected a little over 18 per cent from the high and formed a saucer base for eight weeks.
During this correction, it did not drift below the listing price. Post breakout of a saucer, it has again been forming a small cup formation for eight weeks. It took support at the Rs 2,365-2,400 zone and rallied by forming higher lows and higher highs. The stock took yet another pause after it gained by 73 per cent from the cup bottom. It took a breather for five weeks and formed another small cup. During the last week, it broke the cup pattern and sustained at higher levels for the second week. The stock currently is 5 per cent above the prior pivot. The short-term target is placed at Rs 3,894 and the medium-term target is at Rs 4,440.
BALAJI AMINES LTD. ........................ BUY ................... CMP Rs 2,960.90
BSE Code : 530999
Target 1 : Rs 3,250
Target 2 : Rs 3,523
Stoploss : Rs 2,790 (CLS)
Balaji Amines Ltd., an ISO 9001: 2015 certified company, specialises in manufacturing methyl amines, ethyl amines, derivatives of specialty chemicals and pharmaceutical excipients. It is one of the leading manufacturers of aliphatic amines in India. Technically, the stock is trading at a new lifetime high. It broke out of a six-week cup pattern. Its relative price strength (RS) is highest at 91 per cent. The stock is moving higher by taking support on 10-weekly average. It is trading 9.02 per cent above the 20-DMA and 10.68 per cent above the 50-DMA.
The weekly RSI is sustained in the overbought condition and taking support at the 70 level since August 2020, and very briefly, it breached the level. The stock is meeting Mark Minervini’s trend template rules and volatility contraction pattern rules. The daily ADX is above 25 and the weekly is at 56.23, which indicates solid trend strength. In short, the stock broke the consolidation. A move above Rs 2,958 can be positive and it can test Rs 3,523 in the medium term. Maintain a stop loss at Rs 2,790 on a weekly closing basis.
*LEGEND: EMA - Exponential Moving Average. MACD - Moving Average Convergence Divergence RMI - Relative Momentum Index ROC - Rate of Change RSI - Relative Strength Index
(Closing price as of July 13, 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.