NIFTY Index Chart Analysis : A FIELD DAY FOR THE BULLS

The adage ‘Sell in May and Go Away’ has become obsolete this year as the market scaled up to new lifetime highs. In fact, the Nifty rose by 6.50 per cent in the month of May. It took almost 14 weeks to reclaim its all-time highs. During the last 14 weeks, the correction was limited to just 8.30 per cent, which does not meet any kind of bearish trend characteristics. Generally, a fall of 10 per cent above can be categorised as a correction. If the correction is above 20 per cent, it is called a bear market. The decline in the recent past was no way near that. Technically, the Nifty has broken out of a 14-week cup with a depth of 7.73 per cent. As per the classical technical analysis, the cup is a very strong bullish pattern. The cup target is almost at 16,500. 

A decent consolidation with a lower volume is a pattern characteristic. The breakout is also valid as the volumes recorded were above average for the past two weeks, which is a sign of improved participation in the market. Now the only way to look at the market is to follow the trend. Generally, a cup follows a handle with a retracement anywhere between 23.6-50 per cent. As the Nifty formed a very big bullish bar on Monday after the breakout, there are chances of continuing the breakout with no handle formation. While the cup breakout target is placed at near 16,500, before that it may face resistance at 15,600, 15,785 and 16,223. It is already facing resistance near the 15,600 level.

There are event risks like the RBI policy and the progress in vaccination as also the increase in corona virus cases. The Nifty formed another exhaustion bar on Tuesday. In any case, the handle formation will end at the 38.2 per cent retracement level of the prior uptrend, which is currently at Rs 15,084 and the 50 retracement level is at 14,900. Any retracement from here on should end at these levels. A bounce from these support levels in a retracement could surprise all with a sharper move on the upside. Usually, a cup is followed by a handle and in such a case the Nifty may enter into a counter-trend consolidation.

During this phase the targets are placed at 15,084, 14,906 and 14,720 levels. The handle may form in two to three weeks’ maximum. The highest probability of this handle may in the form of a flag. Don’t be scared if the flag forms in lesser time, which means a zigzag decline again. As long as the Nifty trades between the 14,906-15,660 levels, be with neutral on the index and be selectively positive on the stocks. The Nifty may reach the upside targets in about 34 days in case if there is no handle formation, while the cup is followed by handle or flag formation which would end at 14,976. It may take about 55 trading sessions from the handle bottom to reach the upside targets. There is no point in discussing the indicators.

When the market is at a lifetime high, all the indicators and oscillators show bullishness. There are no negative divergences currently on more extended timeframes. Let us ignore the indicators for the week. A note of caution: A lull before the storm is nature’s law. The India VIX is at the lowest level in recent times. Generally, when lower volatility stays for a long time, it indicates that higher volatility will follow due to the cyclical nature of volatility. India VIX witnessed a prolonged period of low volatility from 11-19 during May 2019 to Feb 2020 and we all know it was followed by a massive surge in volatility in March 2020. The periods of low volatility show neglected behaviour of the market participants, which ultimately forms the market top. 

The inverse relationship between the index and the VIX has been proven historically. It is better to avoid aggressive long positions in the index for time being and avoid chasing stocks which have witnessed a parabola move in the last one month or so. Be selective in buying stocks and select stocks which have formed a proper base pattern. Relative rotation graphs show that the most defensive sectors of FMCG, IT and pharmaceutical indices are in a good position. The IT index is already in the leading quadrant. Metal looks overbought and all the other sectors need a lot of improvement. The Auto index looks promising. It may take two to three weeks to enter the improving quadrant. 

STOCK RECOMMENDATIONS

BAJAJ FINANCE LIMITED ....... BUY ........... CMP Rs 5,786.10 

BSE Code : 500034
Target 1 : Rs 6,222
Target 2: Rs 6,712
Stoploss : Rs 5,700 (CLS)

The company is one of the leading players in the consumer finance segment in the country. It has introduced interest-free EMI finance in as many as 50 categories, including consumer durables to lifestyle products. The company booked 5.47 million new loans in Q4 FY21. The institutional investors increased their stake in the company by 0.56 per cent and 909 funds invested in the stock. It has a strong EPS strength of 89, which means it performed better than 89 per cent of the companies. Technically, the stock is trading at a prior pivot level and formed an inverted head and shoulders kind of pattern. The stock is currently trading 10 per cent above the 10 weekly moving average. The weekly MACD is about to give a bullish signal. The 20 period RSI is above the 45 periods’ average and in the bullish zone. The 40 weekly average is also trending up. During the last 15 weeks of consolidation, the volumes are receding. The ADX (28.13) shows a decent strength in the trend. The Elders impulse has given a bullish sign. The stock is also above the anchored VWAP resistance. In short, the stock is at multiple parallel resistances. A move above Rs 5,827 is positive and it can test Rs 6,222 in the short term. The medium-term target is open to Rs 6,712. Maintain a stop loss at Rs 5,700.

AVANTI FEEDS LTD. ...................... BUY ........................CMP Rs 603.90

BSE Code : 512573
Target 1 : Rs 770
Target 2 :  Rs 913
Stoploss : Rs 560 (CLS)

The company is a pioneer in the Indian shrimp industry with a proven track record of 27 years. It has technical expertise in developing need-based feed in accordance with shrimp culture conditions prevailing in different regions of India’s vast landscape. Technically, the stock has broken out of 38 week-long consolidations. During the current upswing, the increased volume shows that smart money is accumulating the stock. It has also retraced above 61.8 per cent of the previous sharp fall. The stock also witnessed the golden crossover as the 10-week MA moved above the 40-week MA. The 10-week moving average is trending up. The relative price strength is at a 21-week high. The rising ADX is showing improving trend strength. The positive directional indicator is above the -DMI. The weekly MACD line is above the signal line and zero line. The histogram shows bullish momentum. On the daily chart, the stock is moving in a staircase manner. The stock is much above the anchored VWAP and Pring’s KST is giving a fresh bullish signal. In short, the stock has come out of a long consolidation. Generally, the long consolidation breakouts will lead to sharper moves. A sustained move above Rs 587 is positive and it can test the previous swing high of Rs 770 in the short term. Maintain stop loss at Rs 560 on a closing basis. Above Rs 770 the target is at Rs 913, continue with a trailing stop loss

*LEGEND: EMA - Exponential Moving Average. MACD - Moving Average Convergence Divergence RMI - Relative Momentum Index ROC - Rate of Change RSI - Relative Strength Index 
(Closing price as of June 01, 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.