NIFTY Index Chart Analysis

NIFTY Index Chart Analysis

Technicals may take a back-seat as the event day unfolds 

Exit poll predictions powered the Nifty to close at an all-time high. The Sensex gained the most in a single day in the last 10 years. If you compare the 2014 election scenario, this rally is a bit extraordinary. In 2014, election results were declared on May 14 and the election schedule ended on May 12. On that day, exit polls enthused the market to the tune of 115.45 points only as the Nifty moved from 6858.80 to 7014.25. During the course of the previous election, Nifty moved from the low point of 6638.55 (May 8) to the high point of 7563.50 (May 14) and the net gain was about 902.65 points. This time, for the last four days, Nifty has moved 736.90 points. Three more days to the actual results, the Nifty has already moved 70 per cent of the move in the earlier election. So, how much still to go? That is the million dollar question now. Let us examine a few technical parameters. 

Nifty bounced from the oversold condition with a faster retracement. This four-day bounce of 6.63 per cent from the low leads the technical parameters to come out of the oversold condition into a bullish mode. Prior to that, Nifty actually fell for 9 days (historically most of the falls were restricted to 8-10 days). It also tested the earlier four-month long consolidation zone breakout point. The current bounce is meeting certain criteria of breakout rules of Victor Sperandeo. Prior to this ferocious bounce from May 16, Nifty moved in a range for four days. As Nifty entered into the new life-time high zone, let us see if the real election results will propel the Nifty beyond 12,200. Nifty made a life-time high close to the negative divergences, where most of the oscillators are still present on the weekly scale. We suspect that there is a chance of 'Sell on News' emerging this time. The earnings are mixed and Nifty PE is stretched to the historical bubble zone (29.48). At this high PE, any new investment coming in will have a risk element in it. The second reason is that the Nifty's sharp upmove will be a temporary, as many global factors are not favourable for the markets to move higher. The market did correct 50 per cent of the 2014 election move. 

It actually corrected from the high of 7563.50 to the 7118 level in 10 trading sessions. Will this phenomenon continue with just 50 per cent retracement of the euphoric electoral move or correct more than 62 per cent? In case Nifty falls below the 62 per cent retracement of May 14-23 move, Nifty may test the 11,000 level once again. In any case, if the Nifty closes below the 11000 level and falls into the four-month consolidation zone, there is a chance that it will test or breach the 10550 level too. As the indicators are suggesting that more upmove is in the offing, the market is likely to continue with the positive bias till the election results give some clarity on government formation. Any kind of favourable development for the market will lead to a rally up to 12,200 to 12,300 levels. There is a character of a sharper price action—it has to later go through the counter-trend consolidation for at least 38.2 per cent of the sharper move. Such a consolidation market generally gives good opportunities for investment. As there is human emotion involved more than the actual outcome, the market may witness huge volatility. As technicals are likely to take a back-seat on the event day, traders are advised to follow strict money management rules. 

STOCK RECOMMENDATIONS 

CITY UNION BANK .................... BUY ............................. CMP Rs.209 

BSE Code : 532210
Target 1 .... Rs.234
Target 2 ..... Rs.244
Stoploss....Rs.190(CLS) 

City Union Bank closed at life-time high. The stock has broken out of ascending triangle with huge volumes. The stock is also meeting Mark Minervini's trend set-up and the moving averages are in a sequence. The stock has also broken out of the 7-week flat base pattern. It has reached very near to the pivot point. The 14-period RSI is in the bullish zone and has broken out of an ascending triangle. The MACD is also above the signal line and much above the zero line. The histogram suggests that the momentum is picking up. The ADX (33.63) is above the +DI and - DI. The +DI is also above the -DI. This sequence shows the strength in the trend. It is also meeting most of the CANSLIM criteria. Its price strength (RS) is 89 and EPS is at 77 with great (A+) buyers' demand. The ROE is at 14 per cent and the institutions stake in the company is rising. Its performance has been consistent since many quarters. BUY this stock at Rs.209 with a stop loss of Rs.190. The short term target is Rs.234-244. 

LARSEN & TOUBRO (L&T)................... BUY ................... CMP Rs.1460.55 

BSE Code : 500510
Target 1 ..... Rs.1580
Target 2 ..... Rs.1680
Stoploss....Rs.1360 (CLS)

India's diversified engineering major Larsen & Toubro (L&T) operates in infra, power, hydrocarbon and defence industries. L&T once again reached the 68-week long consolidation resistance zone. It closed above the previous resistance or pivot on the weekly chart. The price has broken out of bullish flag kind of pattern on the daily chart. The RSI has also violated the prior resistance and formed a higher high. The MACD is clearly above the signal line and zero line. The histogram suggests that the momentum on the upside is picking up. For the last two weeks, the volumes are showing that accumulation is happening in this stock. Its price strength is 82 with great buyer demand. Buy this stock at Rs.1460.55 with a stop loss of Rs.1360. The medium target is open towards Rs.1580 and the long term target is Rs.1680