NIFTY Index Chart Analysis
Festive Season Adds A Spark To The Markets
The domestic equity market witnessed buoyancy as fresh, aggressive buying interest emerged. After three weeks of consolidation, the Nifty has broken out of a 13-day cup pattern with an impulsive move. It has formed one of the strongest bullish bars on the weekly chart. Our short-term target of 18,350 on Nifty, which was projected in the last column, was met on Thursday, faster than expected. It opened with a gap up in the last two trading sessions and thereafter it moved higher. The highest close with the most bullish bar has given a strong bullish signal. Since the bottom of April 22 the Nifty has not closed below the previous week’s low.
As long as the sequence of higher top and higher bottoms continue, the index will maintain an uptrend. In such conditions, it is not advisable to be bearish or create a short position. The Nifty has undergone two major consolidations in the last seven months. Even in these consolidation bases the index has not breached its prior week’s low. The two gaps of the last week are crucial supports for the near term. Only a decline below these two gaps could give us a cautious signal. The support base has moved much higher. On the daily chart, the first area support is at 18,197 and the second gap area support is at 18,098.
On the weekly chart, the Nifty has formed a fresh buy signal and the histogram suggests that fresh bullish strength is a reality now. The RSI on the daily and weekly charts is above the 75 zone and near the previous high.
The Nifty may rally another 1 per cent before it consolidates once again. We can expect a decent consolidation after meeting the cup pattern breakout target, which stands at 18,444. Aim for this target in the near term. The sharp up-move during the last week with positive gaps also indicates acceleration of upward momentum. As mentioned above, once the cup pattern target of 18,444 is met, it may either consolidate or continue the uptrend. This would be decided only once it attains its target of 18,444. The market is hoping this earnings season will give a fresh growth trajectory. Above 18,444, the probable target is at 18,650, where the channel resistance line is placed. We cannot project more than this level unless a fresh price pattern forms. Any further extension of the rally is likely to open the doors towards the important psychological level of 19,000. In a bear case scenario, the Nifty needs to break the prior week low of 17,839. A break of the previous low can drag the index to a 10-week average of 17,358 or a 50 DMA of 17,207. The market outlook will change to bearish only on a close below the 50 DMA with over five distribution day counts.
Multiple sectors are participating in the current rally, which is another positive factor. And a perfect sector rotation augurs well for the durability of the trend. The laggard sectors such as banking, metals, and infrastructure and PSU stocks would lead the rally from now onwards. FMCG, media and energy are also in the improving quadrant in the RRG graphs and any upward move can take these sectors into a leading quadrant. The broader market outperformance is also keeping the market rally intact.
Interestingly, 80 per cent of the Nifty 50 stocks are trading above the 50 DMA. Historically, the October-December quarter is generally bullish and the January-March quarter is bearish most of the time. After 17 months of sluggish demand for discretionary spending due to the pandemic, an uptick has been seen during this festival season. This spending across the sectors has fuelled a positive sentiment. The corporate sector is announcing capex plans, which is another positive factor. At the same time, with the overbought condition in all timeframes, it is better to stay cautious. Avoid excess leveraged positions and aggressive shorts for the near term.
STOCK RECOMMENDATIONS
ADANI ENTERPRISES LTD. .................... BUY .............. CMP Rs. 1,611.80
BSE Code : 512599
Target 1 : Rs.1,740
Target 2 : Rs.1,880
Stoploss : Rs.1,508 (CLS)
Adani Enterprises is the flagship company of Adani Group and it primarily focuses on infrastructural assets. It is engaged in mining services, airports, roads, rail and metro, water, solar equipment manufacturing and edible oil businesses. The company is planning to unlock the value of airports, roads and edible oil businesses soon. It has already submitted its edible oil company Adani Wilmar’s draft prospectus to SEBI to raise Rs. 4,500 crore. The stock of Adani Enterprises is in a 19-week consolidation and trading near the prior pivot level. This long consolidation breakout would give a sharp up-move. It is trading above all the key moving averages. The stock is 9 per cent above the 50 DMA and 39 per cent above the 200 DMA. In the previoius week, it closed above the parallel highs and broke the bullish symmetrical triangle with higher volume. The daily and weekly RSI is in a strong bullish zone. The daily MACD shows strong bullish momentum and the weekly MACD is showing a decline in bearish momentum. It closed above the Anchored VWAP. The Elders impulse system has given a bullish signal. After a decent consolidation, the stock has broken out of a range. Apart from the symmetrical triangle, it has also broken an ascending triangle. A move above Rs. 1,628 would be positive and may test the symmetrical triangle breakout target at Rs.1,740. Maintain stop loss at Rs. 1,508. The medium-term target is Rs. 1,880.
GRASIM INDUSTRIES LTD. ............. BUY ............. CMP Rs. 1,755.55
BSE Code : 500300
Target 1 : Rs.1,850
Target 2 : Rs.1,930
Stoploss : Rs.1,680 (CLS)
Grasim Industries Limited is a flagship company of the global conglomerate Aditya Birla Group. The company is a world leader in viscose staple fibre and the largest chlor-alkali, linen and insulator player in India. Through its subsidiaries, UltraTech Cement and Aditya Birla Capital, it is also India’s largest cement producer and a leading diversified financial services’ player. Grasim Industries has also announced a foray into the decorative paint business. Technically, the stock has closed at a new high with above-average volume. It has broken out of an upward channel. The daily MACD has given a fresh buy signal. The RSI is in a strong bullish zone and above the prior swing high. The ADX (26.60) shows solid trend strength. The +DMI is above the ADX and prior swing high. The price is above all the key moving averages and all of them are trending higher. The Elders impulse system has given a buy signal. The higher volume confirms the 10-day cup breakout. Pring’s KST is about to give a buy signal. In short, the stock has registered a bullish breakout. A move above Rs. 1,755 would be positive and it can test Rs. 1,850. Maintain a stop loss at Rs. 1,680.
*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 Oct 18, 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.