NIFTY Index Chart Analysis - MARKET READY FOR A TEMPORARY BREATHER

The Indian markets witnessed its nastiest decline in the run-up to the Union Budget in the last 10 years as fear of additional taxation announcement took the wind out of the domestic equities’ sail. But on the budget day the markets witnessed a change of fortune as benchmark indices witnessed once in a lifetime jump. Thereafter, the indices traded exuberantly all through the week with the Nifty touching a milestone of 15,000. The index recorded its best weekly gain since April 2020 as it jumped nearly 10 per cent and closed at a new record high. Overshadowing the performance of Nifty, Bank Nifty emerged as the real hero as it outperformed the Nifty index by a whopping 7 per cent.

A slew of positive catalysts in the form of a progressive and growth-oriented budget renewed buying interest by FIIs with positive global cues, strong Q3 quarterly numbers along with the dovish outlook from the RBI MPC meeting driving the risk-on rally. The FIIs have pumped in more than Rs 16,772.41 crore in the cash segment of the equity markets so far in February.

The Nifty has witnessed a vertical rise of almost 11.67 per cent from its lows of 13,661.75 without any meaningful correction. This unabated up-move in the index has resulted into the index deviating far from its short-term mean (21-EMA) and in the past we have seen that every time the index has deviated anywhere between 5-6 per cent from its short term mean it has been followed by healthy correction in the markets.

Further, we have seen a formation of small bodied bear candle with a large upper shadow this candle that resembles to a shooting star pattern.

Normally, the formation of a shooting star pattern is viewed as a bearish reversal pattern that typically occurs at the top of uptrend. However, this pattern requires a confirmation in the coming trading sessions. The 14-period daily RSI continues to show a bearish divergence against the price. Further, the daily stochastic oscillator is in overbought territory. Considering that the index has deviated far from its short term mean along with formation of shooting star-like pattern and the daily stochastic oscillator has hit the overbought territory, a temporary phase of breather cannot be ruled out.

However, we believe for a temporary breather to materialize the index needs to first decisively close below the prior bar low i.e. 15,064 level. In case the index closes decisively below 15,064 mark, the next level of support is seen around 14,865. Meanwhile, on the upside, the level of 15,250 followed by level of 15,450 is likely to act as a stiff resistance for the index.

At the start of the write-up, we had mentioned that the BankNifty had outperformed the Nifty and has been a poster boy of the current run-up. But, of late, it has witnessed back-to-back formation of indecisive candlestick pattern on the daily chart and moreover, the last two days price action is confined between the high-low of Friday’s bar, so as long as the leader of the up-move does not make any decisive move the index too would oscillate in a range.

The Bank Nifty would only take decisive direction if manages to close above or below the Friday’s high-low (36,615- 35,545). So, all eyes would be on breakout of this range on the Bank Nifty. Overall, in the coming weeks we see index taking a temporary breather. However, any temporary breather from here on should not be interpreted as destructive, instead it should be viewed as opportunity to accumulate quality stocks as we see the index respecting it support level of 14,865 in the near-term.
 

STOCK RECOMMENDATIONS

MAX FINANCIAL SERVICES .................. BUY ....................CMP Rs 737.90

BSE Code : 500271
Target 1 : Rs 840
Target 2 : Rs 870
Stoploss : Rs 720 (CLS)

Max Financial Services Limited (MFSL) is part of a leading business conglomerate — the Max Group. Focused on life insurance, MSFL owns and actively manages a 93.10 per cent stake in Max Life Insurance, India’s largest non-bank, private life insurance company. On the weekly charts, the stock has formed higher high and higher low series pattern that clearly suggests the stock is in a strong uptrend. As the stock is trading near to its all-time high levels it is above all the short and long-term moving averages. The stock is meeting Mark Minervini’s trend template. It is trading above the 40, 30 and 10-weekly averages and all of them are trending up. At the same time, there is a desired sequence. It is also meeting Guppy Multiple Moving Average (GMMA) set up by Daryl Guppy. This structure further reaffirms that the stock is in a clear uptrend. On a weekly basis, the stock is also trading above the 34-EMA ribbon. The stock is clearly in an uptrend and the trend strength is strong as the Average Directional Index (ADX), which shows trend strength, is as high as 40.88 on a daily chart and similarly on the weekly chart it is exhibiting a strong trend. Further, the positive directional indicator (+DI) is sloping upward, and it is a signal that the uptrend is getting stronger. Interestingly, the +DI since August last week has been above the 25-level on the weekly chart. The RSI is in bullish territory in all the timeframes. Considering the above factors, the stock can be bought for a target of Rs 840-870 and a stop loss of Rs 720 should be maintained for long position.

GODREJ PROPERTIES ...................... BUY ................ CMP Rs 1,423.45 

BSE Code : 533150
Target 1 : Rs 1,550
Target 2 : Rs 1,600
Stoploss : Rs 1,381 (CLS) 

Godrej Properties is involved in the business activities of construction of buildings. The stock had registered an all-time high of Rs 1,527.90 in early part of January 2021. Thereafter, the stock entered into a corrective phase and this correction (counter-trend phase) halted around 50 per cent retracement level. After taking support near about the 50 per cent retracement the stock has moved higher and with this we get confirmation that the correction was just a counter trend in the primary uptrend. As in the counter trend phase there was not a single day where the stock has witnessed volumes of more than 30-days average, it should be viewed as a normal profit booking in the stock after a sharp rally. Also, the 14-period RSI didn’t hit oversold conditions during the counter-trend phase. The stock is meeting most of the criteria of the CANSLIM characteristic. A RS rating of 75, which is fair, indicates the recent price performance. Buy demand at A- indicates the institutional investors’ interest in the stock. The institutional investor increased their stake in the company in the last quarter and the number of funds invested in this stock has increased to 235. The RSI on the weekly timeframe is above the 65 mark and interestingly during the counter trend phase the RSI did not move below 60-mark, which means a range-shift in the RSI to a supper bullish range and when a stock is in a strong uptrend it exhibits this characteristic. Hence, traders and investors can initiate a long position in the stock with a risk management level of Rs 1,381 on a closing basis for a target of Rs 1,550 followed by Rs 1,600 in the short-medium term. 

*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 Feb 09, 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.