NIFTY Index Chart Analysis

Our suspicion about the unabated, seven-week vertical rally was finally proved right with the expected pause becoming a reality. The Nifty ended last week with a miniscule 0.5 per cent loss but on the back of high volatility. The Nifty has formed a hanging man-like candle, which is an indication of exhaustion. The index is still 7.53 per cent above the 20-week average, and the 50-week average is 2,472 points away. The distance between the mean average and the index has increased, and there is a possibility of mean reversion. A reasonable correction or a counter-trend consolidation is desirable.

Generally, any steep rally is likely to retrace at least 38.2 per cent, which is currently at the level of 20,540. If the profit booking continues, it may extend to a 50 per cent retracement level, which is at 20,215. The Nifty has gained 3,352 points or 18.51 per cent in the 2023 calendar year as of date. After a subdued year 2022 with just a 4.33 per cent gain, the index negated the hanging man candle’s implications with a heroic rally. Earlier, the Nifty gained by 23.74 per cent in 2021. The most bullish year was 2009, with a 75.76 per cent gain after a global financial crisis. In 2014, the general election year, the Nifty broke a five-yearlong ascending triangle and rallied by 31.39 per cent.

Normally, the FIIs re-jig their portfolios this month. Last week, the decline could be attributed to this reason, which may lead to an adjustment in the Nifty. FIIs were net sellers in each of the trading sessions last week. They sold stocks worth ₹6,422 crore, which is the biggest figure in recent times. The FIIs began fresh buying on November 30 and the benchmark indices made new highs. The market’s bullish strength depends on FII flows from now onwards.

Historically, the January-March quarter is bearish. Most of the market tops have happened in the January-March quarter. In the last 23 years, at least 16 tops were made in this quarter. Nine tops were in January, four tops were in February, and three tops were in March. This means that the first quarter of the calendar year is not a good time for fresh investment. At the same time, in an election year, we have seen the breakout of consolidation in April-May

Backed by these historical facts, the market may consolidate for the next three months. As stated in the previous technical note, the Nifty is in an extremely overbought zone and may enter into counter-consolidation sooner or later. The consolidation is mostly above the level of 20,200, which is a 50 per cent retracement level of the last seven-week impulsive rally. The 10-week average is also at a similar level, i.e. 20282. It is also the big gap area of December 4 and the previous high.

During the next three months, some Large-Caps will outperform and help the index to stay above the 20,200 zone. As stated in the previous column, the zone of 18,600-18,880 is the new base for the market. Refrain from assuming that this would breach. The underperforming large-cap stocks in the Nifty 50, including Reliance Industries, HDFC Bank, Wipro, Bajaj Twins and ITC, will outperform from now on. 

At least 40 per cent of the Nifty stocks have the potential to outperform. These stocks could be some of the major drivers to achieve the 26,000 target by 2025. The Nifty may trade in the range of 20,976- 21,593 for the next week. Expect profit-booking in the Small-Cap and Mid-Cap stocks as they have rallied more than the benchmark. The IT, energy, and FMCG stocks will outperform. Every upside move must be used to book and protect the profits. It is advised to be highly cautious for the next four sessions.

STOCK RECOMMENDATIONS

WIPRO LIMITED .......................... BUY ............................ CMP ₹470.05
BSE Code : 507685
Target 1 .... ₹545 
Target 2 ..... ₹592 
Stoploss....₹430 (CLS)

Wipro Limited is a leading technology services and consulting company. It is focused on building innovative solutions that address its clients’ most complex digital transformation needs. The company is spread across 65 countries with 2.5 lakh employees. It has 1,312 patents. The company’s revenues crossed USD 11 billion in FY23, a growth of 11.5 per cent YoY in constant currency terms. The company has acquired Rizing, a global SAP consulting firm. Its stock has broken out of the 60-week Stage 1 base and 12-week cup pattern. It retraced to above 23.6 per cent of the previous downtrend. The volumes were higher in the last four weeks, showing fresh buying interest. The Stan Weinstein and Mansfield relative strength indicators have just entered into the bullish zone. The stock is trading above the long-term moving average, and all of them are in the uptrend. It is 16.67 per cent above the 50 DMA and 18.51 per cent above the 200 DMA. The weekly MACD is above the zero line, and the histogram shows a strong bullish momentum. The RSI is above the prior swing high and in a strong bullish zone. It has just moved above the MAMA-FAMA-KAMA band. The stock is trading near the anchored VWAP resistance of ₹479. The KST has given a fresh buy signal. The Stochastic RSI is in a bullish set-up. The Elder’s impulse system has formed strong bullish bars. In short, the stock has ended its Stage 1 consolidation phase and entered into a bull phase. Buy this stock in the ₹465-480 zone. Maintain stop loss at ₹430. The short-term target is ₹545. Above this, it can test a level of ₹592 in the medium term.

HEIDELBERGCEMENT INDIA LTD. .............. BUY ................ CMP ₹230.50

BSE Code : 500292
Target 1 ..... ₹270 
Target 2 .... ₹290 
Stoploss....₹215 (CLS)

The company is a multinational cement manufacturing company with a presence in 50 countries. It is one of the world’s leading building material companies with a presence in 3,000 locations. The company produces and distributes cement and aggregates, the two essential raw materials for concrete and asphalt production. It also produces green power, which has increased by over 33 per cent in the last year. The company is planning to increase its cement production capacity. Technically, the stock has broken out of a 64-week, Stage 1 cup pattern. It has a depth of 34.4 per cent. For the last four weeks, the volumes were recorded above average. Its relative price strength is at a new high, showing outperformance. It is comfortably trading above all the key moving averages and is 16.61 per cent above the 50 DMA and 16.59 per cent above the 200 DMA. All the long-term averages are in an uptrend. The weekly MACD shows a strong momentum. The RSI is in a bullish zone. The stock is well above the MAMA-FAMA-KAMA bands. The KST and the TSI have been in a strong, bullish setup. It has also cleared the anchored VWAP resistance. The Elder’s impulse system has formed strong bullish bars. In short, the stock is trading at the pivot of a long consolidation. Buy this stock above ₹230-235. Maintain stop loss at ₹215. The short to medium-term target is placed at ₹270-290.

*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 26, 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.