NIFTY Index Chart Analysis

Nifty broke out of a sloping channel with a sharp bounce of over 1,088.40 points or 4.68 per cent on Friday and Monday. It closed above the 200 EMA and 200 DMA. Last week, the index took support from the 50-week average, formed a hammer candle, and indicated a probable reversal. The index has taken support four times since June 2022. As the Maharashtra election outcome was favourable to the BJP-led Mahayuti alliance , the index opened the fresh week with a huge positive gap of 346 points. If the index closes above the prior swing high of 24,538, it will form a higher high and signal a trend reversal.[EasyDNNnews:PaidContentStart]

Nifty ended its seven-week declining phase, formed a strong bull candle in the eighth week (Fibonacci number), and honoured the swing time rule. The IT index has already hit a new high, and all the sectoral indices saw a rebound. The index has ended its Category 1 correction (11.47 per cent) for now. We need to watch its behaviour around a swing high of 24,538. In any case, if the index fails to defend the recent low of 23,263, except that the Category 2 correction is a possibility, it will mean that the index will test the June 4 low at a minimum, and the fall may continue for 3-5 months at least.

The massive volume over the last three days shows increased buying interest. However, with a 2.39 per cent bounce on Friday, the volumes were lower than the previous day. This volume divergence is the result of some uneven price movements. The FIIs turned buyers after 38 sessions and this is another positive sentiment. As the new future and option rules came into force, the rollovers so far have been lower, which means traders were not interested in continuing the positions for the next month.

In other words, the 2 per cent rally on Friday might be because of short covering. The index must close above 23,956 on a weekly basis to get a confirmation for the hammer candle implications or a bullish reversal. Currently, the index has managed to close above the 23.6 per cent retracement level of the prior fall at 23,974. Normally, the counter-trend consolidations retrace 50 per cent to 61.8 per cent of the prior fall. This zone of resistance is at 24,770-25,126 – a long way to go.

Before this zone, the index must close above the 10-week average of 24,530, the 50 DMA of 24,776 (also a 50 per cent retracement level). A close above this zone will also result in a confirmation of probable consolidation. Now, the distance from the 50 DMA has shrunk to 2.20 per cent from 5.86 per cent in just two days. The index completed the mean reversion by decisively closing above the 20 DMA. The daily RSI formed a base around the zone of 28 and formed a hidden divergence.

It is above the prior high and this confirms the continuation of a bullish momentum. The weekly RSI took support at the zone of 40, which is a positive signal. The daily MACD has given a fresh bullish signal, and the weekly MACD shows a decline in bearish momentum. During the previous pullbacks in the current downtrend, Nifty has been up by 2.19 per cent and 3.03 per cent. The two-day pullback is at 4.68 per cent. But the issue is about closing above the swing high of 24,538 and sustaining for two weeks. If the rally continues, the 50 per cent retracement level will be at 24,770, which may act as strong resistance. Even though the bounce was very strong in the last two days, the reversal signal is yet to be confirmed.

The index has to defend the 50-week average support of 23,367 on a weekly closing basis. It must form a base above this zone, and we may get a good buying opportunity on a breakout. During a rally, protecting profits must be the priority of trade. Focus on the IT and BFSI sectors as they are in the leading quadrant in the relative rotation graphs, and these sectors may outperform the broader market. The metal, bank and PSU indices have improved their relative strength and momentum and entered into an improving quadrant. They have the potential to outperform.

STOCK RECOMMENDATIONS

DIVIS LABORATORIES LIMITED ................. BUY ..................... CMP ₹6,071.65
BSE Code : 532488
Target 1 .... ₹6800 
Target 2 ..... ₹7000 
Stoploss....₹5,800 (CLS)

The company manufactures and exports APIs, intermediates and nutraceutical ingredients. As many as 12 out of the top 20 big pharmaceutical companies have been associated with Divi’s Laboratories for over 10 years.

Technically, the stock is trading at the prior pivot of a six-week flat base. Its relative strength line is at a new high. It is just 2 per cent away from an all-time high. The stock is trading above all the long-term and short-term averages.

The 10-week average has acted as strong support in the base formation and it is trading 30 per cent above the 200 DMA. The weekly MACD is bullish, much above the zero line. The RSI is in a strong bullish zone. The Elder impulse system has formed a strong bullish bar. The KST has been bullish. It is above the anchored VWAP resistance. In short, the stock is ready to register a bullish breakout. Buy this stock in the zone of ₹6,060 - ₹6,100. Maintain a stop loss at ₹5,800. The short-term to medium-term target is at ₹6,800 - ₹7,000.

ERIS LIFESCIENCES LIMITED ..................... BUY ................. CMP ₹1,476.30
BSE Code : 540596
Target 1 ..... ₹1,700
Target 2 .... ₹1,760 
Stoploss....₹1,372 (CLS)

The company is a leading player in the domestic branded formulations market. Just 17 years after its inception, it has had a leading presence in its core cardio-metabolic franchise. Youngest among India’s top 20 domestic branded formulation pharmaceutical companies, it has a strong presence in specialty and super-specialty therapies, accounting for over 80 per cent of its revenue. It has a 10 per cent market share in the insulin industry and commands a leadership position in overall anti-diabetic therapy.

The stock has broken out of the 11-week double-bottom pattern of Stage 2. It recorded a higher volume and validated the breakout. Its relative strength is at a new high, showing outperformance compared to the broader market.

It is trading above all the long-term and short-term moving averages, and they all are in an uptrend. It is 33.1 per cent above the 40-week average and 9.20 per cent above the 10-week average. The weekly MACD is ready to give a fresh, bullish signal. The RSI took support at support at 60 and bounced. Currently, it is trading just 3.2 per cent below the all-time high. The Elder impulse system has formed strong bullish bars. The Stochastic RSI has given a fresh bullish signal. In short, the stock has registered a bull\ ish breakout. Buy this stock in the zone of ₹1,450 - ₹1,480. Maintain stop loss at ₹1,372. The short-term to medium-term target is at ₹1,700 - ₹1,760.

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