NIFTY Index Chart Analysis

NIFTY Index Chart Analysis 
Market awaits Union budget for direction

The market is at a critical junction now as the major trigger, the general budget, is just three days away. Since last two weeks, the market was confined to a range with lacklustre volumes. Most of the times, the market is within the limits of 20-DMA and 50-DMA. For the past few days, 50-DMA is working as support and 20-DMA is acting as resistance. Since June 3, Nifty made six lower lows and lower highs and recovered on June 25 and made a bull candle after two bearish candles on the weekly chart. On June 26, Nifty closed above the June 20 high. But it was unable to sustain above the breakout level. 

Meanwhile, Nifty retraced almost 61.8 per cent of the fall from June 3 to June 19. Even on Monday (June 1), it retested the 61.8 per cent retracement area once again. The price action on Thursday afternoon clearly demonstrated the distribution. Due to June month expiry, on June 25 and 26, huge short covering forced Nifty to move up. This upmove has given a price breakout with lower volumes. The 11865-11625 levels are acting as resistance and support in the past two weeks. As long as these levels are not breached, the market’s range-bound movement will continue. As the Union budget, the major trigger point for the market and the economy, is just another three trading sessions away, the markets may not give any major breakout. Post the budget, we may see a major move in the markets on either side. There are a lot of signs showing that distribution is happening in the market at every higher level. A set of indicators are also not giving any bullish signal as the market is stuck in a range-bound activity. No indicator has made a swing high or a positive divergence as of now. The RSI is still struggling to reach above the 55-60 levels and the MACD histogram is showing some sluggishness in the mood of the bears. But the MACD line is still below the signal line. If at all MACD line is able to cross above the signal line, Nifty may once again try to move to higher levels. The 5-period stochastic oscillator has reached an overbought condition. The directional indicators +DI and +DI are narrowed. These signals that the current range-bound action will continue. The market is witnessing profit-booking on every rise and buying support at the bottom of the range. Maintain a positive bias above 11865 Technicals  level and keep a bearish bias below the 11600 level. As long as Nifty is within the range, keep a neutral stance. In case Nifty closes above 11911-11920 level on a weekly basis, it may move above the prior life-time high. The targets are open towards the 12300 level in the short term. But in case Nifty falls below the 11765 level and if the budget does not give any positive trigger for the market, it will lead to breaking even the 11620 level. Below that, it may test the 11425 level to fill the May 20 gap. 

The interesting fact is that the market in recent times is indicating clear divergent signals. On the positive side, market breadth is improving since last few days. Also, there are early signs of funds moving from some largecaps to quality mid-caps. That is reflected in performance of the indices. The Midcap and Smallcap indices have outperformed the benchmarks. Even some of the beaten down sectors such as power and realty have bounced back by more than 3 per cent from the oversold condition. On the negative side, the number of stocks hitting new lows or new 52-week lows are more even on a positive day. As many as 700 stocks have reached below their face value and 70 per cent of the BSE 500 index stocks have given negative returns in the last month. The Nifty PE is still at a historical high and the market is waiting for positive earnings growth. If the disappointment in earnings growth continues even in the next quarter, the market may react adversely. Any negative budget proposal may dampen the market sentiment. In this scenario, it is advised to stay calm till the budget and follow the direction after the budget. 

STOCK RECOMMENDATIONS 

NIIT TECH ............................... BUY .......................... CMP Rs.1346.15

BSE Code : 532541
Target 1 .... Rs.1445
Target 2 ..... Rs.1480
Stoploss....Rs.1260 (CLS) 

The stock is consolidating for the past five months in the range of Rs.1225-1364. With the upward move from the Rs.1225 level, the stock made higher lows and parallel highs. This price action formed an ascending triangle. Since the last two trading sessions, the trading volumes are increasing and outperforming in comparison to the peers. The stock also formed a 43-week 'cup and handle' formation with 27.7 per cent depth. The MACD line once again reached above the signal line and the momentum is picking up on the upside. The RSI (59.95) is in the bullish zone. It is also meeting all the CANSLIM criteria. Its price strength (RS) is at 85 and EPS strength is at 87. It has good buyer's demand (B+) as institutions are increasing their stakes in the company. The company has good Group Rank (21) and consistent EPS growth of over 45 per cent since last four quarters and is registering more than 20 growth in sales. The return on equity is 20 per cent. The stock is very near to the pivot. BUY this stock at Rs.1346.15 with a stop loss of Rs.1260. The ascending triangle patterns target is placed at Rs.1445, followed by Rs.1480. 

L&T INFOTECH ............................. BUY ........................ CMP Rs.1763.55 

BSE Code :  540005 
Target 1 ..... Rs.1985
Target 2 ..... Rs.2135
Stoploss....Rs.1675 (CLS) 

L&T Infotech has formed a very long symmetrical triangle and it is about to break. The volumes are increasing for the past four days. The stock is trading above all the short and long term moving averages. The stock is clearly trending up as it is forming higher highs and higher lows since December 2018. The moving averages ribbon is also showing bullishness in the stock. The RSI is in the bullish zone and the MACD is above the zero line and signal line for the past three days. The MACD histogram is also suggesting that the bullish momentum is picking up. The stock has formed a 20-week 'cup and handle' pattern with 18.8 per cent depth. This stock is meeting all the CANSLIM parameters. Its EPS strength is at 88 and price strength is 78. It has good buyers' demand with above average volumes and good group rank. It has achieved more than 30 per cent EPS and sales growth since last four quarters with 31 per cent return on equity. The stock looks attractive even fundamentally too. BUY this stock at Rs.1763.55 with a stop loss of Rs.1675. The short term target is open towards Rs.1985 and the medium term target is Rs.2135. 

(Closing price as of July 02, 2019)