NIFTY Index Chart Analysis:NOT MUCH ROOM FOR CORRECTION

The Nifty 50 index closed at a new lifetime high of 17,323.6. It has gained about 618 points during the last week. Every day it hit a new lifetime high. For just one day, it closed mildly in negative terrain on Wednesday; however, before that it registered over 200-point rally consecutively at the beginning of the week. As mentioned in our earlier columns, there are no weak signs in the market as the price structure remains in the favour of bulls. Nifty has now met the 100 per cent of the measure target of the two months consolidation (June-July). The Nifty has risen by 1,810 points or 11.67 from the July 28 low in just 26 sessions. Just before the June-July consolidation, the Nifty had rallied 12.37 per cent in 37 sessions.

Now the question is how long the rally can sustain. The classical technical analysis defines that any sharp upside is likely to be followed by a counter-trend consolidations, like we have seen in the earlier instances. This consolidation can take form of a flat base, flags or a pennant pattern. Within the last month's rally as well we had observed the formation of two small consolidation bases. These bases are important to get clues about trend continuation or a reversal.

Since the index is trading into uncharted territory, we move on to seasonality analysis to get a check on how will the market perform in the month of September. The seasonality chart shows that the September month's performance is subdued with 55 per cent positivity rate in the last 15 years. Having said that, the October-December quarter is generally a bullish one. So, in September it has closed higher than its open level only 55 per cent and mostly consolidated, before entering into the bullish season. 

Interestingly, for the month of September we anticipate that the Auto and Bank indices could outperform the broader market. Seasonality analysis indicates that in the month of September Nifty Bank has delivered an average return of 4.3 per cent, which is its second best. Meanwhile, the Auto index has delivered average return of 2.9 per cent in the month of September. As the index is at a new lifetime high, no momentum indicators show the weakness. However, the RSI has entered into overbought territory. Considering it has entered into overbought territory, we could see a counter-trend consolidation, which might take support in the band of 16,700-16,900 zone. As long as this zone sustains, remain with a positive bias.

Technically, the Nifty is moving in a perfect rising channel. The support line, also known as the demand line, and the 50 DMA are exactly placed at almost the same level. The 50 DMA is at 16,157. At the same time, the Nifty is moving in higher tops and higher bottoms on daily and weekly timeframes. This is a sign of a strong uptrend. Unless it turns into a lower top and lower bottom, a negative bias is not justified. Only a close below the prior week’s low would trigger a short-term weakness. As the Nifty formed the strongest candle, as there are no shadows visible. The low and high of the week i.e. 16,764 – 17,340 is likely to act as an immediate support and resistance.

Only in case of closing below the 50 DMA, the market may enter into a clear downtrend. Interestingly, the 61.8 per cent retracement of the latest up move is at 16,204. Further, Nifty's PE ratio despite such a strong up-move is at 26.54, whereas on April 1 it was at 33.60. This is due to the calculation of PE that has changed from the beginning of this financial year from standalone to consolidated earnings. At the same time, the corporate earnings have risen because Nifty companies cut the costs significantly and the base effect.

In a nutshell, the market met its measured target with the sharpest possible up-move. With the strong up-move, the Nifty has now closed above the Upper Bollinger Band, which could lead to some retracement back into the bands. As many technical parameters are in overbought conditions, it may enter into a counter-consolidation, which is a highest probability. Hence, to safeguard, keep a close eye on the prior week's low which would work as key support for now. But the market may not correct much as history shows the October-December quarter is most bullish. 

STOCK RECOMMENDATIONS 

GRINDWELL NORTON LTD​ ............. BUY ........... CMP Rs1371.80

BSE Code : 506076
Target 1 : Rs 1,490
Target 2 : Rs 1,550
Stoploss : Rs 1,300(CLS)

Grindwell Norton is a pioneer in the manufacture of grinding wheels in the country. The company has businesses that include abrasives, ceramic materials, performance plastics and ADFORS. The company is a market leader in abrasives with 26 per cent market share. Technically, the stock has broken the eight-week base with above-average volume. It is trading at a lifetime high. On the daily chart it has broken out of a double bottom (O’Neil) pattern with a higher volume. During the last week, delivery volume is consistently over 55 per cent, and on Wednesday, 72.5 per cent delivery volume indicates strong accumulation in the stock. Institutional investors increased their stake in the company by 8.04 per cent during the last quarter. It is comfortably trading above the 50 DMA and 20 DMA. It is trading 9 per cent above its 50 DMA and is 10 per cent above the 20 DMA. The stock is meeting Mark Minervini’s trend template. Its relative price strength is good at 70. Weekly ADX (47.94) shows solid trend strength. MACD is also about give a fresh buy signal. The daily MACD histogram shows an increased momentum on the upside. RSI has given a buy signal according to Cardwell’s setup. The Elders impulse system and Pring’s KST have given a fresh buy signal. In short, the stock is in a strong bullish price structure. A move above Rs1,390 is positive, and it can test Rs1,490 followed by Rs1,550 in the medium-term. Maintain a stop loss at Rs1,300 

ICICI SECURITIES LTD.. .......... BUY ........... CMP Rs 772.20

BSE Code : 541179
Target 1 : Rs 905
Target 2 : Rs 1,067
Stoploss : Rs 700 (CLS)

ICICI Securities Limited (I-Sec), a subsidiary of ICICI Bank Ltd., is one of the largest brokerage firms in the country. It operates in the businesses of broking, distribution of financial products, wealth management and investment banking. It operates icicidirect.com, a virtual financial supermarket. It has a client base of 58 lakhs of which 3.9 lakhs were added during the last quarter. Technically, the stock is trading near the pivot and in the seven-week flat base. Its relative price strength is fair at 66. The stock is trading well above the long-short moving averages. It is 8.5 per cent above the 20 DMA and 9 per cent above the 50 DMA. All the moving averages are trending higher. The stock closed above the Anchored VWAP resistance, and the Elders impulse system has given a buy signal. Pring’s KST too is showing a bullish signal. On the weekly chart, the ADX (46.97) shows solid trend strength. RSI is in the strong bullish zone. The daily MACD histogram shows an increased bullish momentum. It is trading very near to the prior pivot. In a nutshell, the stock is near to the breakout level of a counter-trend consolidation. A move above Rs803 is positive and it can test Rs905 in the short term and Rs1,067 in the medium term. Maintain a stop loss of Rs700.