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NIFTY Index Chart Analysis

NIFTY Index Chart Analysis

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Indian stock market is still trading in a range. After correcting more than 12 per cent from the all-time high levels, the market is in the mood of consolidation. The benchmark index Nifty is trading in 10746-11147 zone for the past 26 trading sessions. On August 23, it made a low of 10637 on an intra-day basis. It is forming an 'inverted head and shoulder' kind of pattern on the bottom with a positive divergence. The positive closings are because of short covering mostly, as historical high-level shorts have build-up in the system. Even on Monday, the open interest was down even though Nifty closed with a gain. The RSI, the leading indicator is moving in higher lows and higher high fashion and is at just arm's length to the 50 zone, though the price is moving in a tight range. This indicates some positive strength in the market. Nifty also closed above the short term moving averages, 8-DMA, 13-DMA and 20-DMA. There are several resistances in the 11140-11200 zone. The initial resistance and parallel highs or neckline for inverted head and shoulders is placed at 11146. The 50-EMA is placed at 11174 and 38.2 retracement level of June 3 to August 23 fall is placed at 11197. In case Nifty is able to clear all these resistances, it will gain bullish strength. Above the 11200 level, the targets are open towards 11370 and 11540. Till then, we can consider this rally as a pullback from an oversold condition in a downtrend. 



As on weekend of August 30, Nifty formed a long legged Doji candle. Initially, the last week's candle breached the prior week’s low, but recovered and closed almost near the open of the week. The general rule or even the Steve Nison principle says that the opening of the next bar is critical for the next move. The move will be in the direction of the opening. This week it opened below the last week’s close. So, the move should be on the downside. Interestingly, Nifty moved higher after opening below the Doji. Three more trading sessions will give a clear direction. In case this week close is below the last week’s close, the downtrend will resume immediately. Interestingly, the 50-EMA has crossed under the 200-EMA. This condition is considered as a death cross, which indicates a long term bearishness. These moving averages are turning down. Even though the Nifty is moving sideways, the 200-EMA is trending down. If we compare the current sideways market with Nov 2018 to March 2019 period, after a 14.9 per cent fall from the earlier top, the 50-EMA is unable close decisively below the 200-EMA. These averages travelled together most of the five-month consolidation period. But this time, the 50-EMA is clearly in a downtrend and decisively below the 200-EMA. This shows the bearish strength. If the 200-EMA stops turning down and then flattens, we may see a positive bullish strength. If the 200-EMA turns upside, then Nifty can move above the 62 per cent retracement level of 11543. We must watch the market movement above the 11200 zone. Most of the recent bottoms are made with bad fundamental news such as GDP at 5-year low, fall in auto sales to a record low, rupee depreciation, US-China trade war and gold prices rising to new highs. Until these factors turn positive or show some improvement, the market may move in consolidation on a bearish trend. If the demand revival comes with festival season and earnings improvement, it will boost the market sentiment. Even though there are some sentiment boosting stimulus measures like removal of surcharge on FPIs and PSU banks' consolidation, the FPIs have not stopped selling in the equities. In August, the FPIs sold equities on all days. 



In this background, wait for a decisive close above 11200 for a bigger move. Avoid short positions for now, as long as Nifty makes higher highs. Look for a close below the prior bar low for a bearish signal. Until then, be with a positive bias in the market. Most of the world market indices are also in a similar technical pattern. The cues may come from the global markets too. So, be watchful.

STOCK RECOMMENDATIONS

PETRONET LNG ......................... BUY ......................... CMP Rs.265.35

BSE Code : 532522 Target 1 .... Rs.275 | Target 2 ..... Rs.295 | Stoploss....Rs.255 (CLS) 



Petronet, a rare bull chart that has yearly, half-yearly, quarterly, monthly, weekly and even daily direction on the bull side. It is just at arm's length from its lifetime high. It has broken out of a 7-week flat base pattern. It also formed a 98-week saucer with 26 per cent depth. The stock is above all the short and long term moving averages. It is meeting the Minervini's trend set up. Even major indicators like RSI and MACD are in the bullish structure. The 14-period RSI (66) is in the bullish zone and forming higher highs since May 2018. After forming a base at Rs.200 level for more than 7 months, the bullish momentum picked up and is moving higher. MACD is above the signal line for the past three weeks and the histogram suggests strong bullish momentum. The stock is meeting CANSLIM criteria too. Its Relative Price Strength (RS) is at 90 and EPS strength is as strong as 82. BUY this stock at Rs.265.35 with a stop loss of Rs.255. The immediate target for xx`x`x the stock is placed at all-time high of Rs.275. Once the stock crosses Rs.275, which is prior high, the targets are open towards Rs.295 in the medium term. 

SANOFI INDIA ....................... BUY .............................. CMP Rs.6263.80

BSE Code : 500674 Target 1 ..... Rs.7000 | Target 2 ..... Rs.7400 | Stoploss....Rs.6000 (CLS)



Sanofi, the MNC pharma company, is ready to breakout from a bullish flag pattern. This less fancy stock that stays away from FDI news is a silent performer in the market. The stock is trading above all the moving averages and inching towards the prior resistance and meeting the Minervini's trend set up. After a solid basing formation between Aug 2015 to Dec 2017, the breakout has given a whopping 44 per cent return in just 17 weeks. Later on, the stock is consolidating in a corrective phase. Now, it is just 2 per cent away from the prior pivot. It has also formed a 31-week cup and handle pattern with a depth of 20 per cent. The stock is also meeting all the CANSLIM criteria. Its Relative Price Strength (RS) is at 86 and EPS strength is at 74. With 17 per cent return on equity (ROE) and consistency in sales and EPS growth, the demand from institutional buyers is increasing with good buyer demand as B+. The 20-period RSI is at 58. The bullish flag pattern is already broken and is moving higher. The MACD line is above the signal line for the past 10 weeks and has reached above the zero line 7 weeks ago. All the indicator set-ups suggest that a bullish move is on the cards soon. BUY this stock at Rs.6263.80 with a stop loss of Rs.6000. The target is open towards Rs.7000, followed by Rs.7400.

(Closing price as of Sept 09, 2019) 

 

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