NIFTY Index Chart Analysis
NIFTY Index Chart Analysis
The Samvat 2076 mood of the Indian stock market
The investors have started building portfolios across all the sectors and market caps. Interestingly, FIIs bought all five days during the last week. Nifty closed at 11,670 after a 61-day interval. The last time it closed near this was on July 17th. The ‘V’ shape recovery for the last 8 days reached September 23rd levels. The Nifty retraced more than 70 per cent of the June 3rd - August 23rd fall and almost 100 per cent of the September 23rd - October 9th fall. Interestingly, it also has broken out of the downward channel formed from June 3rd highs. The only concern about this breakout is the lack of volumes. From September 23rd onwards, the volumes are constantly declining, with the distribution volumes getting higher. After taking the support at 50-DMA and a 61.8 per cent retracement of the earlier downswing, the Nifty is comfortably moving higher with lower volumes and is managing to protect previous bar low.
In any case, its closing below the prior low will be the first sign of profit booking. After making a new swing high, it will attract some kind of profit booking. Let us watch whether the new swing high will end at 11,790 or rise higher. At this level, a close below 11,540 - 11,460 zones may lead to some selling pressure. As midcaps are bouncing with the vengeance, the market may witness further bullishness with smaller corrections. These corrections or dips will give some better buying opportunities. The Nifty mid cap index is yet to cross 100-EMA and the 200-DMA is still more than 200 points away. We can see similar conditions in the smallcap index as well. The RSI has made a new high swing on the weekly chart but nothing such can be seen on a daily chart. Stochastic Oscillator has reached the overbought condition.
The MACD histogram is registering a rise for the last three days. Considering these indications, the current market structure looks bullish, and any dip is a buying opportunity. There are various stocks that are coming out of flat bases after forming different consolidation patterns. The market breadth is also positive for the majority of the days. The number of stocks hitting new 52-week highs is also increasing every day. The most beaten-down stocks are witnessing sharp pullbacks. These are all initial signs of the improving bullish strength. Simply put, the market is coming out of oversold condition at the current juncture. A majority of the mid and smallcaps are down by more than 60 per cent of their all-time highs. After this fall, many of them, specifically those with fundamental strength in the business models, are again coming out of the flat base formations or bottom consolidations. This situation is called a transition period to move into the stage-2 from the stage-1.
The mid and smallcaps indices are able to cross a 50-DMA or 10-week average but still far away from the 100 and 200-DMAs. If these two indices are able to cross these averages then the overall market in a complete bull grip. The majority of sectoral indices, including IT, Pharma, Metals and Auto indices are also in the same structure. The Bank Nifty is yet to cross the 100-DMA or 30-week average. The benchmark indices, moving higher because of a few large caps, including Reliance, Bajaj twins, reached all-time highs. More than 50 per cent of the Nifty stocks are trading at their one-year highs. Interestingly, not many stocks are near the 52-week lows.
This scenario gives the bullish mood to the market. As the earnings season still going on and there are many negative surprises and under performers as of now, this is the better time to build the portfolios with a mix of market caps and sectors.
STOCK RECOMMENDATIONS
RELIANCE INDUSTRIES ................... BUY ...................... CMP Rs.1392.85
BSE Code : 500325 Target 1 .... Rs.1450 | Target 2 ..... Rs.1465 | Stoploss....Rs.1350 (CLS)
Reliance industries closed above its prior pivot level, registering a new lifetime high close. It also has almost broken out of a 23-week cup or consolidation. The depth of these patterns is 22.7 per cent. Most importantly, the 50-DMA has crossed over the 200- DMA, also known as the golden crossover, a long term bullish signal. These moving averages are clearly trending up. In addition to this, the stock is trading above the 100-DMA and is yet to turn upside. The leading indicator, RSI, has broken out of a downward channel and an inverted head and shoulders on a weekly chart.
Three weeks ago, the MACD crossed over the signal line on the zero line and the histogram is showing that the bullish momentum is picking up. John Murphy’s technical rank for this stock is as high as 91.7 and William O Neil’s relative price strength is also high at 88. These ranking shows the stock’s technical strength and also indicates that the stock is performing better than 90 per cent of the listed stocks. The institutions have increased their stake by 5.57 per cent and the double-digit EPS growth looks attractive at the current level. Buy this stock at Rs.1,392.85 with a stop loss of Rs.1,350. The target is open to Rs.1,450 - Rs.1,465 in short term.
KOTAK MAHINDRA BANK ................ BUY ................... CMP Rs.1607.50
BSE Code : 500247 Target 1 ..... Rs.1685 | Target 2 ..... Rs.1705 | Stoploss....Rs.1550 (CLS)
Kotak Mahindra Bank is moving in a tight range after retesting the 16-week flat base pattern. The last week’s volumes are suggesting that the accumulation from institutional investors has increased. On the daily chart, the stock has broken out of downward slopping resistance trend line with a decent volume. This breakout actually resembles the bullish pennant pattern breakout. With this, the stock has got the Martin Pring’s technical rank of 92.7, which is as high as possible. William O Neil’s relative price strength is also high at 91. These two parameters highlight the technical strength of the stock. The indicators setup also looks bright for the stock. The 14-period RSI took support at 50 levels, several times in the last 11 months. Even the recent dip also took support at the 50 levels.
The weekly RSI has now reached above 64 levels and is showing strong bullish strength. The MACD histogram is positive for the last three weeks. However, the Daily histogram is yet to turn into the green. The Stochastic oscillator is also showing a bullish signal. The traditional trend strength indicator, ADX, is resting at a higher level of 34.98 and +DI is above the -DI and below the ADX. This is a clear indication of the trend strength, meeting all the popular setups, including Minervini’s trend template. Buy this stock at Rs.1,607.50 with a stop loss of Rs.1,550. The target is open to Rs.1,685 - Rs.1,705.
(Closing price as of Oct 23, 2019)