NIFTY Index Chart Analysis : A MARKET WITHOUT LEADERSHIP

Finally, the equity benchmark indices have broken out of about a two-month-long consolidation period with an impulsive move. The Nifty has retraced 162 per cent retracement of the February-April decline, which was a longer decline time-wise. The earlier declines were limited up to three weeks but this particular one was about nine weeks long. Interestingly, all the declines are limited from 8.5 per cent to 10.9 per cent. The recent two-month long consolidation had a range of about 265 points. During this consolidation the 10-weekly average or 50 DMA acted as a good support for the index. 

Very recently, this consolidation resolved on the higher side and it has achieved the measured target swiftly. After this huge breakout and subsequently achieving the measured target, once again the index has entered into the consolidation phase. Interestingly, the breakout of two-month long consolidation happened on a negative market breadth and without broader market participation. The BFSI sector along with heavyweights like Reliance Industries and Bharti Airtel played a pivotal role in the breakout. As a result, the Nifty gained over 3 per cent during the previous week.

For the past four days, the Nifty moved in just about 180 points range. Interestingly, in the past four trading sessions, the index has formed two indecisive candles and two bearish candles. The formation of indecisive and bearish candles is a clear sign that the market is in an exhausted phase. The breakout and the consecutive gap-up openings showed strength in the breakout. But it failed to continue with the bullish momentum due to lack of broader market participation. The broader market indices Mid-Cap 100 and Small-Cap 100 are seen underperforming in the last week and their underperformance continued this week.

The Nifty is up by 3 per cent in the last week, but on the flipside the broader markets witnessed a decline. The Mid-Cap 100 index confirmed negative divergence and bearish implications on August 10 as the RSI closed below the prior swing low. Even the much broader index, Nifty 500, which represents over 90 per cent of the market capitalisation, has been forming red candles for the past five days. The above evidence shows an early sign of a red flag, but considering that the Nifty has not formed a lower top, lower bottom (LTLB) formation yet, these signs are not reliable.

Only in the case of LTLB formation on the daily chart could there be any damage to the market structure. Going forward, the level of 16,176 is an important support level and with any failure to hold this support level on the daily closing basis the index could go on to re-test the breakout level of 15,900-15,950. In the last four trading sessions we have seen there is buying interest at the lower levels and though the broader markets underperformed, the sector rotation was perfectly done. Currently, the broader market is weak, and certain large-caps are also seen turning weak as at least 19 stocks from Nifty 50 are seen trading below their 20 DMA and 50 DMA. On Tuesday, 408 of Nifty 500 stocks declined, which clearly reflects the broader market weakness.

The relative rotation graphs (RRG) of a daily timeframe shows that in the last six trading sessions post the breakout only IT and metal sectors are in the leading quadrant and metals are moving southwards, which is sign of losing momentum. The FMCG, pharmaceuticals and media indices are in the lagging quadrant. Auto, Energy, PSU Bank indices have also lost momentum in the improving quadrant. This shows that leadership is missing in the market. Only the financial services sector has gained momentum. In this phase, as per the basic Dow Theory, unless the Nifty forms LTLB on a daily or weekly basis, the trend will remain neutral to positive. Once the Nifty closes below the previous bar low on a weekly basis, it would give the first sign of a bearish move. Overall, it is not the time to be complacent.

STOCK RECOMMENDATIONS 

INFOSYS LTD. ............. BUY ........... CMP Rs 1,676.35

BSE Code : 500209
Target 1 : Rs 1,783
Target 2 : Rs 1,989
Stoploss : Rs 1,619(CLS)

Infosys is a global leader in next-generation digital services and consulting. It enables clients in more than 50 countries to navigate their digital transformation. Technically, the stock is trading above the four-day consolidation and at a new pivot. As the stock is trading at a new lifetime high, all the short and long-term averages are trending upside. It is 8 per cent above the 50 DMA and 25 per cent above the 200 DMA. Its relative price strength is reasonably placed at 50 and improving. It is also at a new high. The MACD line is about to move above the signal line, and the histogram shows an improvement in the momentum. The MA ribbon is trending higher. There is a positive sign with the MACD line rising and above the signal line. The RSI is in the bullish zone. The ADX (49.86) shows solid trend strength. The Elders impulse system shows strong bullish bias. Pring’s KST has given a buy signal. The stock is outperforming the broader market. It may consolidate for some time. As long as the stock trades above Rs 1,672 be with a positive bias. Maintain a stop loss at Rs 1,619. The short-term target is placed at Rs 1,783 and the medium-term target is at Rs 1,989.

GLAND PHARMA LTD. .......... BUY ........... CMP Rs 4,206.85

BSE Code : 543245
Target 1 : Rs 4,600
Target 2 : Rs 4,750
Stoploss : Rs 3,870 (CLS)

Gland Pharma was established in 1978 in Hyderabad and has grown over the years from a contract manufacturer of small volume liquid parenteral products to become one of the largest and fastest growing injectable focused companies with a global footprint across 60 countries, including the United States, Europe, Canada, Australia, India and other markets. The stock of Gland Pharma has been one of the best performing stocks in the pharmaceutical space. The stock is up by nearly 78 per cent on year-todate basis. Technically, the stock after having soared as much as 38 per cent in just 23 trading sessions from June to July underwent a consolidation phase where it was seen moving in band. This consolidation led to the formation of 12-day base pattern. The stock has recently seen breakout of this pattern along with above 10-day average volume. The stock from a technical standpoint is comfortably place above its key short and long-term moving average. It is also meeting Guppy Multiple Moving Average (GMMA) set up by Daryl Guppy. This structure indicates that the stock is in a clear uptrend and the trend strength is extremely high. The Average Directional Index (ADX), which shows trend strength, is as high as 46.64 on a daily chart and 71.18 on a weekly chart. Generally, above 25 levels is considered as a strong trend. In both timeframes, the stock is meeting the criteria. Considering the above factors one can accumulate this stock in the range of Rs 4,140-4,220 for a target of Rs 4,600 followed by Rs 4,750 with a stop loss of Rs 3,870.

*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 Aug 10, 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.