NIFTY Index Chart Analysis

In this latest update, Nifty has continued to gain for the sixth straight week. After testing the previous high and the sloping trend line drawn from March 2020, the index has bounced to new highs. As suspected in July, the 88-week consolidation in the range of 15,200-19,200 was the Stage 1 base. Prior to that, it rallied by 147.69 per cent or 11,093 points in just 82 weeks. By closing above the previous high of 20,222, the index has registered a 21-week first base in a transition to Stage 2. With this breakout, the level of 18,600-18,887 has become a new base for the market.

Only below the 19,700-19,500 zone will there be a short-term to medium-term negative for the market. The current 193-week long-term uptrend will be negated only below the swing low of 18,837, causing the market to enter into a downtrend as it forms a lower low and breaks the trend line support. The intermediate downtrend of 18.35 per cent from October 2021 to January 2022 can be considered a Category 2 correction and a major correction in an ongoing 193-week long-term uptrend. If you see this set-up from the Fibonacci extension lens, Nifty closed above the 50 per cent extension level of 20,730. 

The probability of forming a second base in Stage 2 is around 22,039, which is a 61.8 per cent extension level. The pattern target is a 100 per cent extension at 26,507, which can be achieved by the January to March 2025 quarter. This is where the super cycle will end, and the market will turn into a serious bear market, which can repeat 1992, 2008 and 2020 kinds of crashes. The market will correct at least 25 per cent from the top. From a near-term perspective, Nifty looks overstretched as the RSI has been in the extreme zone for the past five days.

Currently, it is at 82.83, which is the highest level in recent history. The index tested the psychological target of 21,000 last week. Nifty is now trading 6.47 per cent above the 50 DMA and 11.06 per cent above the 200 DMA. The distance between these key moving averages also shows overbought conditions. Expanding Bollinger bands also suggest overstretched market conditions. The last three days of price actions are in a tight range of 156 points, indicating consolidation. The support rose to 20,600 and last Monday’s gap area. 

If Nifty cannot take out Monday’s high of 21,026, we may see some retracement towards 8 EMA of 20,637. Below this level, the gap of 20,507-20,291 will be the crucial support zone. Some factors may dampen the bullish mood. The negative earnings’ surprises and the deceleration in the earnings will be a factor to consider. Another factor is a negative surprise in the forthcoming general elections, which can be termed an event risk. The market is expecting the most positive outcomes of these two factors, which is the reason for the current buoyancy in the market. 

The prolonged low VIX regime is another major factor to keep in mind. This is an unusual scenario, historically speaking. It may cause an unexpected bear attack. Normally, the declines are sharper and short-lived. We have not seen a significant correction since March 2020. The end of the four-year cycle is very near. Even if it extends, expect a Category 1 correction of 11-13 per cent from the top. In a nutshell, this is the time to be solid and defensive with risk management.

Take out partial profits and keep trailing stop losses. The IT index has registered a base breakout and transitioned into Stage 2. The sector is a potential market leader for the next two years. The 24-30 month target for the IT index is 54,640, which is over 64 per cent gain from now. The short-term target is at 37,055. Focus on good quality and higher relative strength stocks. Overall, be highly selective with new buying. To reiterate, we must guard the profits on the table at higher levels by trailing the stop losses.

STOCK RECOMMENDATIONS

SCHNEIDER ELECTRIC INFRA. LTD. .............. BUY ............. CMP ₹389.00
BSE Code : 534139
Target 1 .... ₹455
Target 2 ..... ₹478 
Stoploss....₹350 (CLS)

Schneider Electric Infrastructure Ltd. (SEIL) provides power equipment solutions and is engaged in manufacturing, designing, building and servicing the electricity network’s technologically advanced products and systems. The company’s core business includes systems, transactional business and services. Its solutions are used by electrical distribution (utilities), power generation companies and the electro-intensive industry, particularly oil and gas. It also offers electricity distribution management systems, a software suite for self-healing smart grid. The stock has registered a new high and closed at the pivot. There were massive volumes over the last two days. Post-earnings, the stock is attracting new buying interest and is forming an 11-week consolidation and trading above all the key moving averages. It is 14.87 per cent above the 50 DMA and 47 per cent above the 200 DMA. All long-term moving averages are in the uptrend. Its relative price strength (RS) is at a new high, showing outperformance compared to the other listed stocks. A weekly MACD is about to give a bullish signal. The RSI is in a strong bullish zone. The Stochastic RSI is in the bullish mode. The Elder’s impulse system has formed strong bullish bars. Institutions have increased their stake in the company by 26.57 per cent and the number of institutions has increased to 72. It has a master score of B and meets a majority of CANSLIM investing characters. Buy this stock in the zone of ₹385-400. Maintain a stop loss at ₹350. The short-term to medium-term target is ₹455-478.

INDIAN RAILWAY FINANCE CORP. ............... BUY ................. CMP ₹82.97
BSE Code : 543257
Target 1 ..... ₹102 
Target 2 .... ₹110 
Stoploss....₹75 (CLS)

Indian Railway Finance Corporation (IRFC) is the dedicated financing arm of the Indian Railways for mobilising funds from domestic as well as overseas’ capital markets. It is a public sector enterprise under the administrative control of the Ministry of Railways, registered as a NBFC with the Reserve Bank of India. The company has played a major role in supporting the expansion of the railway network in India. The company’s principal business is to borrow funds from the financial markets to finance the acquisition and creation of assets, which are then leased out to the Indian Railways. Its AUM is ₹4.66 lakh crore. It has no GNPA and the tax liability is nil. Its NIM is at 1.33 per cent. Technically, the stock has formed a 13-week cup pattern. It registered a second high close recently with massive volumes. Its relative price strength (RS) rating line is at a new high, indicating a strong outperformance compared to the other listed stocks. The stock is comfortably placed above all the key moving averages. It is 9.58 per cent above the 50 DMA and 71.84 per cent above the 200 DMA. The weekly MACD histogram shows a decline in bearish momentum and is about to give a bullish signal. The RSI is bouncing from the near 70 zone and is in a strong bullish zone. The Mansfield relative strength indicator also shows an outperformance compared to the Nifty 500 index. The Elder’s impulse system has formed a strong bullish bar. The Stochastic RSI has given a fresh bullish signal. Buy this stock in the zone of ₹82.50-84.50. Maintain a stop loss at ₹75. The short-term to medium-term target is at ₹102 followed by ₹110.

*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 December 12, 2023)

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.