NIfty Index Chart Analysys

The Indian stock markets staged a stellar performance in the holiday-truncated expiry week, registering best weekly gains since May last year. The US President Donald Trump’s inaugural protectionist speech, followed by Fed Chief Janet Yellen’s hawkish signals for regular interest rate hikes, took the world’s biggest economy to record highs that spread optimism throughout the global markets.

Moreover, ECB’s monetary stimulus keeping the rates at zero percentage points buoyed the economy. Thereafter, the world’s second largest economy posted a revival in GDP at 6.8 per cent that boosted the Asian bourses. To add to these gala events was an obvious pre-budget rally that was expected before the Union Budget. On the sectoral front, Metals, Auto, Power and Banks pulled the markets up with respective stocks posting strong corporate earnings. However, IT and FMCG remained subdued.

Technically, on the weekly time frame, Nifty, after forming a consolidation type pattern during the week ended January 20, 2017, followed it with a long range bullish candle. The strong resistance zone of 8550 which was 61.8 per cent retracement level of major downswing from high of 8968.70 to low of 7893.80 has been broken decisively on the upside and Nifty has closed above it. 

Going forward, on the upside, the zone of 8730-8750 is found to be a strong resistance zone for Nifty as the level of 8738 is 78.6 per cent retracement level of entire downswing. The daily 14-period RSI has scaled higher and entered into the overbought zone and its current reading stands at 73.

This zone has acted as a significant resistance in the past one year and has led to reversal from the highs on the previous occasions. On the downside, the zone of 8475-8550 is likely to act as a strong support for the Nifty. A decisive move below this zone is likely to open up for correction up to levels of 8300-8210. Going into the Budget event, bulls had taken the charge as there were towering expectations from the Union Budget.

However, the Union Budget did not disappoint the market as it was combination of goods reforms and moreover, there were no major changes in long term capital gains (LTCG) tax. History suggests that the Union Budget has played an important role in the last 4-5 years as it has seen major reversal from the downside as well as reversal from the upside. For example, last year, on the Budget day, Nifty registered a low of 6825 and thereafter almost scaled to level of 8970, which was a stupendous rally. 

Today, the market continued to surge higher. However, going forward, February 4 will see the start of a series of state elections and on February 8, RBI will conduct its monetary policy review. These two events will provide further direction to the market.

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STOCK RECOMMENDATIONS

The stock of Ramco Systems is currently trading at Rs.375. Its 52-week high/low stands at Rs.814.20 / Rs.285 and were made on May 3, 2016 and December 15, 2016. The stock has formed a strong bullish candlestick pattern on the weekly time frame exactly at its 52-week low level. This suggests a bullish reversal from the lower levels. On the daily time frame, the RSI formed a positive divergence. Thereafter, the stock had made small higher tops and higher bottoms on the daily time frame with decent rising volumes. Considering the above hypothesis, we are of the view that the stock has formed its short term bottom and going forward we expect a decent bounce back from the current levels. We advise traders to initiate a long position in this stock at Rs.368-361 with a price target of Rs.396-422, strict stop loss should be maintained at Rs.345. 

BSE Code : 511196 Target 1 ..... RS.2050 | Target 2 ..... Rs.2100 | Stoploss....Rs.1675(CLS)

The stock of Can Fin Homes is currently trading at Rs.1896. Its 52-week high and low stands at Rs.1889.85/ Rs.840 and were made on October 18, 2016 and February 12, 2016. The stock after registering high of Rs.1889.85 on October 18, 2016 entered into a corrective phase and during this corrective phase it took support near its important long term support i.e. 200-day EMA. Along with taking support from its long term moving average, the stock formed a ‘hammer’ candlestick pattern on the weekly chart. At present, the stock has given a breakout of the downward sloping trend line joined from the high of Rs.1889.85. The daily RSI is trading in the bullish range, which is positive for the stock. We advise traders to initiate a long position in this stock at Rs.1855-1800 with a price target of Rs.2050-2100, strict stop loss should be maintained at Rs.1675.