NIFTY Index Chart Analysis

Benchmark index Nifty continued its positive momentum last week and closed at another new lifetime high. As forecasted in June last year, the current rally is a result of an 86-week Stage 1 consolidation. In the previous 55 weeks, Nifty rallied by 5,869 points or 31.67 per cent. The index is moving in a systematic bullish trend. After breaking out of the 73-week ascending triangle in 2014, the index rallied 100 per cent by January 2020. This is a historically repeated behavioural trait. It rallied by 100 per cent when it declined more than 25 per cent for many times.

Post the 2020 decline of 38 per cent, the index rallied by 147 per cent in 19 months. Later, it declined by over 18 per cent and consolidated for 86 weeks. This long consolidation broke out in June last year. Since then, the index has continued its rally for the previous 55 months. This rally of over 31 per cent has two bases, which can be considered as Stage 2 bases. As stated earlier, the Stage 1 consolidation target is 26,256 by the first quarter of 2026. Before that, Nifty could form another base of around 25,056, which is 89 per cent of the Fibonacci extension level of the prior trend.

An interesting fact is that the monthly volumes were higher in the current month after March 2022. For the last seven months, volumes have been above average, which indicates accumulation or a participation phase. On a lower timeframe, Nifty moved higher in a wavering and indecisive manner. But if we remove the election result day movement, it did not form a lower low on a weekly chart. In a nutshell, the equity market is in a super cycle bull phase. The targets are much higher if we have a little longerterm view.

However, the index may have more confusing moves over a shorter period. In the last six days, there have been only two white candles. Before this, the index rallied sharply with four strong bullish candles, resulting from a tight range. It is now 5.58 per cent above the 50 DMA and 2.52 per cent above the 20 DMA. The Bollinger band has begun to contract. This is an indication that the market may enter into consolidation or a mean reversion. The MACD line is far away from the zero line, which is an indication of the stretched market condition.

On the daily chart, it has begun its downtrend. On the monthly chart, the RSI is at its highest level after November 2014, just before the new high, which is a sign of overbought condition on the longer-term chart. The weekly RSI is at 74.67 and the daily RSI is above 73.13. In all timeframes, the RSI is in an overbought zone. On the monthly chart, Nifty has formed a rising wedge pattern, which has a bearish implication. The resistance is around the 24,500 level. Before moving to further highs, the index must correct to the mean levels.

The 20 DMA is at 23,725 and the prior breakout is also at a similar level, which may act as strong support. Before the Union Budget, do not expect the index to move beyond 24,500-24,600 on the upside and 23,725 on the downside. As long as the index protects its prior day low on a closing basis, the scenario cannot be bearish. Only below the prior day will we get a weaker signal. Even though there are no weaker or bearish signs, it is better to adopt a cautious approach to the market as the indicators suggest overbought and overstretched conditions. Stay with defensive stocks, which have higher relative strength. Pharmaceuticals, IT and oil and gas stocks may may outperform the next month as they have improved their momentum and relative strength.

STOCK RECOMMENDATIONS

HIMADRI SPECIALITY CHEMICAL ............... BUY ................ CMP ₹425.50
BSE Code : 500184
Target 1 .... ₹485
Target 2 ..... ₹525
Stoploss....₹390 (CLS)

The company is a global speciality chemical conglomerate. It is a pioneer in India’s lithium-ion battery anode material and is engaged in developing and innovating raw materials for the lithium-ion battery value chain. Its diverse product portfolio includes speciality carbon black, coal tar pitch, refined naphthalene, new energy materials, sulphonated naphthalene formaldehyde, speciality oils, power, etc., catering to various industries such as lithium-ion batteries, paints, plastics, tyres, aluminium, graphite electrodes, agrochemicals, and defence and construction chemicals.

The estimated capital expenditure for this expansion is ₹220 crore. The plant is expected to be operational within 18 months. Technically, the stock has broken out of a 23-week consolidation and is trading within the buy zone. It is forming a strong bullish bar after testing the breakout level and trading at a new lifetime high. The price pattern also looks like a cup. Its relative strength line is near a new high. The stock is above all the key long-term and short-term moving averages. It is 28.44 per cent above the 40-week average and 14.88 per cent above the 10-week average. The weekly MACD has been in a bullish momentum for the last three weeks. The weekly RSI is in a strong bullish zone. The Elder impulse system has formed a series of bullish bars. As the stock is in uncharted territory, it has cleared all resistance, including Anchored VWAP. The KST is about to give a bullish signal. In short, the stock has registered a bullish breakout. Buy this stock in the zone of ₹410-430. Maintain a stop loss at ₹390.

ONGC LIMITED ................................ BUY ........................... CMP ₹297.45
BSE Code : 500312
Target 1 ..... ₹380
Target 2 .... ₹400 
Stoploss....₹265 (CLS)

A Maharatna company, ONGC is the largest crude oil and natural gas producer in India, contributing around 71 per cent to Indian domestic production. Crude oil is the raw material used by downstream companies like IOC, BPCL, HPCL and MRPL (the last two are subsidiaries of ONGC) to produce petroleum products like petrol, diesel, kerosene, naphtha and cooking gas LPG. ONGC has the unique distinction of in-house service capabilities in all the areas of exploration and production of oil and gas and related oil-field services.

Technically, the stock has broken out of a 10-week consolidation. It has recorded the highest volume and above-average volume. It is trading at a new high and has erased all the resistance. It is above the long-term and short-term moving averages and is 21.12 per cent above the 40-week average and 7.41 per cent above the 10-week average.

Its relative strength is fair at 69. The stock has an EPS rank of 86, which is a good score, indicating consistency in earnings. The weekly MACD is about to give a bullish signal. The RSI has shifted its range into a strong bullish zone. The Stochastic RSI has given a fresh, bullish signal. In short, the stock has registered a strong bullish breakout and is trading at a new high. Buy this stock in the range of ₹292-305. Maintain stop loss at ₹265. The medium-term target is at ₹380 followed by ₹400.

*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 July 09, 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.