NIFTY Index Chart Analysis

Nifty made a unique and rare move last week, moving in a 2,057 points range and forming a 2,008 point-long lower shadow. With a sharp rise-declinerise in a week with a surge in volatility, trading has become the biggest challenge. This distinctive pin bar, or a Dragonfly doji candle of a 2,057 points range, is a very rare occurrence. This candle pattern at a new high indicates potential reversal, a significant shift in the market’s dynamics. The index also saw a significant surge in volume, a level not seen since the third week of February 2021. The index encapsulated the last six months of price action in just five trading sessions.

Following this significant move, Nifty marked its highest closing in history. In this eventful week, several supports were breached, and resistances were cleared, adding to the intrigue of the market’s performance. However, if we ignore the price action of June 3 and 4, there is nothing wrong with the overall trend. Nifty has decisively broken out of a rising channel with a higher volume. The index has met our upside and downside targets in a week. It is trading above all the key long-term and short-term moving averages.

The 10-week average acted as support last week. Now, it is trading 3.36 per cent above the 50 DMA. During the volatile session on June 4, the index tested the 200 EMA, is now long-term support, and may test again in the near term. As the euphoria cools off in a fresh week, the index daily range shrunk to just 230 points. From now on, the index may move slowly to continue the trend with small retracements. First, it will retest the breakout level. If it closes below the channel supply line, we will see a retest of the 50 DMA of 22,502. Before this, the 23.6 retracement is at 22,909, which is immediate support.

The profit-taking-led retracements after the massive price move normally test the 38.6 retracement level, which is currently at 22,598. The weekly RSI is 66.35 and still has a bearish divergence as it has not closed at the new high. The weekly MACD line is below the signal line and stays with a bearish bias. The leading indicators continue to show bearish divergences as a caution. These are signs of the market having the potential for profit booking retracements. The new government has been formed, and the allocation of ministries shows that the NDA government intends to continue the policies, as all the major ministers’ portfolios have not been changed.

The next major trigger will be the general budget, which is scheduled for next month. Before that, the market will continue trading within the last week’s range. The Relative Rotation Graphs show that all the major indices are losing their momentum. The metal, consumer durable and auto indices were in the leading quadrant but were seen losing their momentum. The FMCG, BankNifty, FinNifty and media indices are in the improving quadrant, but only media and FMCG have better relative strength and momentum.

The Nifty IT index is in the lagging quadrant, but it has improved its relative strength and momentum. The IT index tested the prior Stage 1 base breakout level and closed above the 50 per cent retracement level of the prior fall. The Nifty Pharma index has broken out of a flat base, the auto index closed at a new high, and the FMCG index is at a prior pivot. These sector stocks will be in the limelight from next week onwards. Select the stocks in these sectors with higher relative strength. In a nutshell, Nifty registered a strong rebound from the lows. As there are no imminent event risks in the near term, the index may retrace to the 20 DMA of 22,676, with a profit booking at higher levels. Defensive sectors like FMCG, pharmaceuticals and IT will do well. Fresh buying must focus on these sector stocks.

STOCK RECOMMENDATIONS

TRANSFORMER AND RECTIFIER INDIA ........... BUY .......... CMP ₹769.15
BSE Code : 532928
Target 1 .... ₹860
Target 2 ..... ₹920
Stoploss....₹700 (CLS)

The company is a leading manufacturer of transformers. It designed and manufactured the world’s first 420 kV ester fluid-filled shunt reactor. It is a leader in high-voltage transformers up to 1,200 kV. The company has a wide range of transformers, including power and distribution transformers, furnace transformers, rectifier transformers, and special transformers. It has strong in-house design and technical expertise combined with a technical collaboration | JV relationship for 765 kV transformers and reactors. It has an installed capacity of 37,200 MVA in three plants. The company is coming up with a new manufacturing capacity of 12,000 MVA which will be operational by Q3FY25 for the renewable and green energy sector. Technically, the stock has broken out of an eight-week cup pattern. During the last two weeks, the volumes were recorded above average. It is trading at a new lifetime high. For the last one year, the 10-week average has acted as a strong support. All the long-term and short-term averages are in an uptrend.

Currently, it is 18 per cent above the 10-week average. Its Relative Strength line is at a new high, showing an outperformance compared to the broader market. The weekly MACD shows a strong momentum. The RSI continued to be in the strong bullish zone. The stochastic RSI and the KST have been in a bullish zone. The Elder impulse system has formed strong bullish bars. In short, the stock has registered a bullish breakout. Buy this stock above ₹768. Maintain stop loss at ₹700. The medium-term target is at ₹860 - ₹920.

ASHIANA HOUSING LIMITED ..................... BUY ................. CMP ₹410.70
BSE Code : 523716
Target 1 ..... ₹455 
Target 2 .... ₹490 
Stoploss....₹370 (CLS)

The company is primarily engaged in real estate development and mainly constructs residential buildings for different categories. It operates in four residential segments: kids-centric homes, active senior living homes, senior living homes and premium homes. It is a market leader in the senior living homes segment. The company has executed projects in the states of Rajasthan, Haryana, Jharkhand, Tamil Nadu, Maharashtra and Gujarat. It has launched five greenfield projects in Jamshedpur, Jaipur, Pune, Gurugram and Bhiwadi and eight phase extensions in Chennai, Bhiwadi, Jodhpur and Gurugram. The total area launched for booking was 29.46 lakhs sq. feet. Technically, the stock has broken out of an eight-week consolidation and is trading at a new lifetime high. It retested the prior pattern breakout. The volumes were increased in the last two weeks.

Currently, it is trading 42.34 per cent above the 40-week average and 12.22 per cent above the 10-week average. All short-term and long-term averages are in an uptrend. Its Relative Strength line is at a new high, showing an outperformance. The Stochastic RSI has given a fresh bullish signal. The weekly MACD shows a strong bullish momentum and the RSI is in a strong bullish zone. The KST has been in a bullish mode. The Elder impulse system has formed strong bullish bars. In short, the stock has registered a bullish breakout. Buy this stock above ₹405. Maintain stop loss at ₹370. The medium-term target is ₹455- ₹490.

*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 June 11, 2024)

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.