NIFTY Index Chart Analysis
Markets to remain volatile till poll results
The Indian stock markets are becoming more and more tricky and volatile since past five weeks. As we are nearing the event risk of general election mandate, market participants are becoming indecisive regarding their new investments and it is reflecting in the price action.
A fast-paced move was witnessed in the month of March after a four-month range-bound action. As the market entered the month of May, which is assumed to be most bearish month in the global stock markets (“Sell in May and go away” is a popular saying), which coincides with the general elections, we may experience high volatility. The Nifty has broken April range on the downside and a distribution day. Even though FPIs poured about Rs.12500 crore in April, the market is unable to make new lifetime highs. Since August 2018, Nifty tested the 11761 level several times, but it was unable to sustain above that level. This downside breakout will give strength to the bears. The next important support level is 50 DMA at 11426. If this level breaks, then the Nifty will go down all the way up to the level of 11200. The RSI is well below the 50 zone and the negative divergences have received confirmation by closing at swing lows. The MACD histogram is clearly showing that the negative momentum is picking up.
Last week, three consecutive Doji patterns indicated this downside breakout with the support of negative divergences in the indicators. For the first time after February 20, the RSI reached the 45 zone. Historically, the 40-45 zone in the RSI is very strong support for the Nifty. Let us wait and watch whether this level will be protected this time in the wake of event risk of the general election results. While both Sensex and Nifty have maintained their 1000/300-pt ranges since April 1, we turned cautious and watchful on the broader universe, i.e. small-caps and mid-caps, after being positive since mid-Feb, because both these broader indices were trading near their respective 200-day EMA levels. The recovery in Nifty from February onward was mainly powered by FII buying to the tune of Rs.14,000 crore. But, in the last four trading sessions, the FIIs turned net sellers. With the election results just two weeks away, market appears to be cautious and nervous. The India VIX index is at high in recent times, indicating that high voltage times lie ahead. The sharp sell-offs on Monday and Tuesday breached the psychological and important support levels. Now, the bulls need to move above the recent high of 11760 and sustain above that level, otherwise markets will be in the hands of bears for some time. For the next week, the market may trade between 11200-11650 range. In any case, the bulls managed to protect the 50 DMA level, i.e., 11426, with the help of short covering, which may lead to another round of selling pressure. The market breadth is still very negative as the declines are outnumbered by advances. The leading sectoral index Bank Nifty closed below the prior swing low and has broken the descending triangle pattern, which is very bearish. If a leading sector with high weightage in the index crashes, the overall market will also follow the direction. In this volatile times, traders must apply hedging strategies, otherwise they may get caught in the sharp moves. As we mentioned earlier, the IT and pharma sector indices may outperform the overall market. At least in the near term, apply bearish or hedging strategies to protect your capital.
BATA INDIA ....... SELL ........ CMP Rs.1350.50
BSE Code : 500043
Target 1 .... Rs.1280
Target 2 ..... Rs.1260
Stoploss....Rs.1435(CLS)
Bata India Ltd (BIL) is the largest retailer and leading manufacturer of footwear in India with 1300 retail stores as of Dec 2018. The company has taken up an initiative like increased advertisement spend, which will lead to a pick-up in footfalls into its stores. The technology initiative will drive conversion of these footfalls. These initiatives will drive revenue growth. But technically, for the first time, the stock has closed below the 50DMA which is not good for the quality stock. It has also closed below the 23.6 per cent retracement of the recent upswing. At the same time, it has also closed below the recent swing low. Temporarily, these are not good signs for the stock. The negative divergence in RSI is also clearly visible and has closed below the key supports. The negative divergence is also visible in MACD and the MACD line has fallen below the signal line. The histogram is also suggesting negative momentum. The targets are open for Rs.1280 and 1260. As long as it trades below Rs.1435, there will be a bearish bias. We can re-enter the stock if it shows price strength at a later stage.
TECH MAHNIDRA ............. BUY ........ CMP Rs.807
BSE Code : 532755
Target 1 ..... Rs.900
Target 2 ..... Rs.920
Stoploss....Rs.760 (CLS)
Tech Mahindra (TechM), a part of Mahindra Group, offers technology services and solutions across telecom IT & network services, consulting, application & infrastructure outsourcing, engineering services, BPO & platform solutions, among others. TechM delivered healthy performance in Q3FY19 with revenue growth. Technically, it is forming a cup pattern since last 9 weeks. It is meeting all the CANSLIM characteristics. The stock is trading above the 50, 150 and 200 DMAs and they are in ascending sequence. Most of the indicators are indicating that the consolidation may continue for few more days. Its price strength (RS) is 88 and the EPS strength is 81. The return on equity is healthy at 20 per cent. The consistent revenue and EPS growth at an average of more than 20 percent makes it look attractive fundamentally too. The number of FPIs holding this stock rose by 55 to 1019 in the March quarter. Accumulate this stock in the zone of Rs.800-810 with a stop loss of Rs.760 The targets are open towards Rs.900 and 920.
