Nifty Index Chart Analysis
NIFTY Index Chart Analysis
Nifty breaks out of multi-month consolidation; outlook positive if Nifty trades above 11,100
Nifty broke out the four-month consolidation with relatively low volumes. Finally, it closed above the October 2018 highs. After four months of sideways action, it retraced more than 61.8 per cent of the Sept-Oct 2018 fall. The fall occurred in just 38 days and to retrace just 62 per cent of the fall, it took 88 days. While the Sensex and Nifty are moving in a flat range, the Mid-cap and Small-cap indices completed their 13-month correction and are moving upwards. The overall market breadth is positive for the last few weeks. The advance-decline ratio improved to 4:1. Last week, stocks from the mid-cap universe gained 5-30 per cent and from the small-cap universe, almost 50 per cent of the stocks rose between 5-40 per cent. The small-caps and mid-caps have outperformed the large-caps. One expects this rally to extend to the large-caps with higher gains. Still, the participation among large-caps is limited. At least nine stocks in Nifty touched 52-week high or reached near to that level. 11 Nifty stocks rose by more than 10 per cent. These statistics show that the broader market trends are improving with selective buying.
Technically speaking, Nifty broke out of the four-month long sideways action. Now the question is whether or not this breakout will sustain. As we mentioned earlier, any such long consolidation breakout must have a faster follow-up retracement action with supporting volumes. Let us wait and see whether this happen or not. The Nifty closed above the upper Bollinger band, which shows the overbought condition. Generally, whenever the price moves above the upper Bollinger band, it should then move within the band. On the other side, the stochastic oscillator is extremely in overbought condition since last two days. There is no divergence visible in the RSI. It is still in the bullish zone. With today’s breakout, ADX just moved above the -DI, but it is still turning down on the weekly chart. The Commodity Channel Index, which indicates tops and bottoms much earlier than any other indicator, reached the highs of January 2018 on the weekly chart. The price-earnings (PE) ratio, which is a fundamental factor and determines the valuation of the market, is almost at life-time highs. The derivative data like Put-Call ratio (PCR) is at 1.46, which indicates the overbought condition.
With these technical pieces of evidence, let us not bother about the major index structure and better focus on opportunities available in the broader market. At the same time, wait for the major indices to close previous day's lows for a bearish view. As long as Nifty trades above 11,100, be positive on the overall market.
STOCK RECOMMENDATIONS
RELIANCE INDUSTRIES ................ BUY ................. CMP Rs.1329.85
BSE Code : 500325
Target 1 ....Rs.1410
Target 2 .....Rs.1435
Stoploss....Rs.1233(CLS)
Reliance Industries is a diversified company engaged in oil and gas, petroleum refining, marketing, digital service and retail segments. It has reported the doubledigit growth for nine consecutive quarters. Meeting most CANSLIM criteria, its price strength is 89 and EPS strength is reasonably good at 74. The stock closed near life-time high on Monday with reasonably good volumes. It is meeting all Mark Minervini’s trade set-up rules for accumulating the stock. The RSI is extremely bullish as it is forming higher highs and higher lows.
Other momentum indicators also suggest that the rally will continue further. The MACD is much above the zero line and above the signal line for eight days. Trading above all are the short and long term moving averages. The ADX is turning up and above 23 with correlation of -DI much below the +DI and ADX. The indicator which shows the cycles is also showing that the top is not yet done.
IPCA LABORATORIES .................. BUY ..................... CMP Rs. 923.55
BSE Code : 524494
Target 1 ....Rs.1000
Target 2 .....Rs.1050
Stoploss....Rs. 850(CLS)
The stock closed at life-time high on Monday. Its price strength is superior at 90. Huge accumulation is happening in the stock, with volumes consistently above the 50-week average. It is meeting 75 per cent of Warren Buffett’s investment rules. Its revenue in quarter ended December 31, 2018, grew by 10.3 per cent and net profit rose by 51.7 per cent. Consistent EPS and sales growth was seen since the last 7 quarters. The total institutional holding increased by 0.28 in the recent quarter.
Technically, it is looking very strong on all parameters. The RSI is in a strong bullish zone and meeting the Cardwell’s range shift rules. The MACD is above zero line and signal line for the last three weeks. The ADX is at a strong level, and -DI is much below the ADX and +DI. The stock actually came out of the 9-week flat base pattern. Among pharma stocks, this is one of the stocks that made life-time highs.
(Closing price as of Mar 12, 2019)