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NIFTY Index Chart Analysis : FOLLOW THE TREND

NIFTY Index Chart Analysis : FOLLOW THE TREND

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The domestic stock market’s winning streak has continued for the fifth straight week. The bulls are not giving any chance to the bears to dominate the market. However, the wavering moves of the bulls have been creating confusion among traders. The sector rotation and the broader market outperformance have kept the market flourishing. The Nifty has rallied almost 111 per cent since its March 2020 low. During the 15 months of this rally, the market ignored several historical patterns. Fundamentally, the high PE has become obsolete. Many bearish technical patterns have failed.  

These indecisive and conflicting moves have become the order of the day. For the last three days, the Nifty has been making a new record high with indecisive candles. In the recent past, several such Doji candles failed to get bearish confirmations. As Steve Nison’s candlestick principle, the Doji candle at a lifetime high requires a close below it for a bearish implication. That has not happened until now. The price has made a new record high, but the indicator is far away from its previous high. This is clearly indicating a negative divergence. The average daily ranges are also declining. The cash volumes are declining and they are below the average.

These facts indicate that the market is overstretched. Certainly, there are no bearish signals. But then, as long as Nifty has protected the prior week’s low, be with a positive bias. The 66-day cup pattern breakout has met 50 per cent of its target. Our earlier short-term target of 15,968 has almost been met. In fact, the Nifty retraced above the 161.8 per cent (15,470) of last year’s fall in the second attempt. Earlier it made the exact top at the level in February. For the third week it is sustaining above this level. The index is moving higher since May 14 without making any lower swing.

A fall of over 100 points on June 9 created some hopes for bears. Further, a sharp intraday fall on June 14 was recouped in the second half of the trading session and the index closed near the day’s high. This clearly displays the mood of the market participants which is that buying at the dip has been a preferred theme. The much broader index, Nifty 500, is also at a new record high during this week. All the major sector indices such as Nifty IT, Pharmaceuticals, Metal and FMCG are also at a record high. But the leading sector, Bank Nifty, has been making a divergent move compared to Nifty. The last two days of price action has provided hope of a reversal in Bank Nifty.

The index heavyweight stock, Reliance Industries, has broken out of the seven-month long sideway decisively. These are positive factors for the market. However, with formation of three consecutive indecisive patterns, the index is giving a cautionary signal. On the other hand, it shows inherent strength with broader participation. In these conditions, it is wise to follow the trend rather than anticipate a reversal. So far, there are no definite reversal signs on the chart. Hence, it is better to follow the trend but with some caution. The Nifty has a limited upside of 15,986, where the short-term resistance placed. Above this level, as projected earlier, the next target is at 16,493.

But, on the downside, a move below 15,606 -15,566, which is a major support level, would give the first signal of a reversal in the market. The 20-DMA is currently placed at 15,501. These are some crucial supports for the short term. Only below these levels it may retest the cup breakout level of 15,285. For the next few days it would be tough to follow the market in a shorter timeframe or intraday. The volatile moves will be more impulsive. As the VIX and implied volatility at the lower level indicate, the option premiums are also not attractive. There is a maximum call selling seen at the 16,000 level. A low volume rally cannot be trusted blindly. Hence, follow strict trailing stop losses for all the long positions.

STOCK RECOMMENDATIONS

AVENUE SUPERMARTS LTD ................ BUY ................... CMP Rs 3,359.55

BSE Code : 540376
Target 1 : Rs 3,760
Target 2 : Rs 3,900
Stoploss : Rs 3,200 (CLS)


D Mart is a one-stop supermarket chain that offers customers a wide range of essential home and personal products under one roof. Its core objective is to offer customers good products at great value. D Mart was set up by celebrity investor Radhakishan Damani and his family to address the growing needs of Indian families. It has 234 stores, mostly in western and southern India. The company owns all the store’s properties. Technically, the stock has broken out of a 12-week cup and handle. It has closed at a new lifetime high. The stock closed 23.58 per cent above the 40-week moving average and 12.06 per cent above the 10-week moving average.

The weekly MACD has given a fresh buy signal. The stock meets Mark Minervini’s trend set-up rules. The RSI has broken out of the downward channel and negated negative implication and turned bullish. The ADX (26.58) shows decent trend strength. The +DMI is much above the -DMI. The Elders impulse system has given a bullish signal. The stock is trending higher base by base. It shows a strong price structure. In short, the stock has registered a solid bullish breakout. A move above Rs 3,330 is positive and it can test the levels of Rs 3,760 to Rs 3,900 in the short to medium term. Maintain stop loss at Rs 3,200. 

GRAVITA INDIA LTD. ...................... BUY ...................CMP Rs 127.85

BSE Code : 533282
Target 1 : Rs 138
Target 2 : Rs 147 
Stoploss : Rs 117 (CLS)


Gravita India Ltd. is one of the largest lead producers in India. The company has a state-of-the-art nonferrous lead and aluminium processing unit at Jaipur in Rajasthan. It carries out smelting of lead ore, lead concentrate, lead battery scrap and aluminium scrap to produce secondary lead metal and aluminium ingots. It established an aluminium recycling unit in 2019 and an aluminium and plastic recycling unit in Africa. The company is planning to establish e-waste, lithium, rubber and copper recycling units by 2025. Technically, the stock has broken out of a 14-week cup and handle with a massive volume. On the daily chart, it has broken out of an ascending triangle.

Its relative price strength is at Rs 82. It closed above the prior pivot level. The stock also retraced over 50 per cent of the prior fall. It is trading above the short and medium term averages. It is trading 5.56 per cent above the 10-week moving average and 10.04 per cent above the 40-week moving average. The weekly MACD has given a buy signal and the ADX (39.01) trend strength. The RSI is in a super bullish zone. The stock is above the anchored VWAP on the weekly chart. In short, the stock registered a valid bullish breakout. A move above Rs 128 is positive and it can test Rs 138 in the short term. Above this level, the target is Rs 147. Maintain stop loss at Rs 117.

*LEGEND:  EMA - Exponential Moving Average.  MACD - Moving Average Convergence Divergence  RMI - Relative Momentum Index n ROC - Rate of Change n RSI - Relative Strength Index
(Closing price as of June 15, 2021)
Disclaimer : Above recommendations are based on various technical parameters and any fundamental input has not been considered for the recommendations. Follow strict stop loss for the recommendation.

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DSIJ Mindshare

Privatization bound BPCL Board approves of the amalgamation of BORL

Amalgamation is expected to enhance the valuation of BPCL bound for privatization but rising fuel prices may act spoiler.

Shreya Banthia / Article rating: 5.0

In the Board Meeting held on October 21, the scheme of amalgamation has been approved by the members. The amalgamation will consolidate BPCL’s presence in Bina facilitating future expansion and diversification in the region. BPCL, which is a Maharatna PSU holds 14-15 per cent of the country’s total refining capacity. Amalgamation is expected to enhance the valuation of BPCL bound for privatization by enhancing its refining capacity. 

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