NIFTY Index Chart Analysis

As anticipated in our analysis, Nifty has demonstrated remarkable structural resilience since October 2023, with corrections lasting no more than two weeks and pullbacks limited to around 5 per cent. True to this pattern, the index recently corrected by 5 per cent between July 29 and August 9. However, following this correction, Nifty has rebounded as improving US economic data has eased recession fears. Market participants are now anticipating a rate cut in the US, and signs of potential progress in the Middle East ceasefire talks have further bolstered the sentiment.

Nifty has now retraced more than 61.8 per cent of the decline from its all-time high to the low of August 5, while also filling the downside gap area from the same date. High-beta stocks, particularly in the banking sector, have sparked a significant uptick in market activity, with robust buying interest persisting in the broader market for the second consecutive session. The advance-decline ratio underscores the prevailing bullish sentiment.

Bank Nifty has finally closed above the 50,800 level for the first time since early August, reclaiming its important short-term moving average of the 20 DMA. Moreover, it has almost filled the downside gap of August 5. Sustaining above the 50,830-50,880 level is crucial for the Bank Nifty index, as the neckline of a double bottom pattern is situated around this zone. A close above this resistance level would trigger a breakout of the double bottom pattern, potentially extending the rally towards 52,000 to 52,240, which could help the index reclaim the 25,000 level.

Adding to the bullish tone is the formation of a higher peak and trough following the consolidation breakout on the Nifty index, along with multi-sector participation, signifying revived upward momentum. This makes us confident that the index will resolve higher and gradually challenge the all-time highs of 25,000 in the coming weeks. Therefore, any dip from this point should be viewed as an opportunity to accumulate quality stocks, with strong support placed at 24,100-24,184 as it is confluence of 50-DMA coincided with last week’s low.

A crucial factor to monitor is the decline in the US dollar index, which has recently hit an eight-month low and is nearly flat on a year-to-date basis. Historically, the correlation between the Nifty index and the dollar index indicates that when the dollar is strong, the Nifty tends to face challenges in achieving significant upward movements. This is primarily because a strong dollar often leads to capital outflows from emerging markets into the US. However, with the current depreciation of the dollar index, the outlook is more favourable for emerging markets, particularly the Indian market.

Additionally, the India VIX volatility index has dipped below the level of 14, further boosting confidence among bullish investors. As long as the India VIX remains below the 14-mark and its 20-day moving average, which is positioned at 14.65, the risk-on rally is likely to persist.

We maintain a positive outlook as long as the Nifty index remains above its key moving average of the 20-DMA. It is also essential to closely monitor the positioning of key indices like the Bank Nifty, which is at a critical resistance level. A breakout of the neckline pattern of the double bottom would be encouraging. Additionally, it is advisable to actively track global developments, as they are likely to influence the intermediate tone of our markets.

STOCK RECOMMENDATIONS

BHANSALI ENGINEERING POLYMERS ............. BUY .......... CMP ₹156.95
BSE Code : 500052
Target 1 .... ₹176 
Target 2 ..... ₹185 
Stoploss....₹139 (CLS)

Bhansali Engineering Polymers Limited (BEPL) has emerged as a pioneer in manufacturing internationalquality Acrylonitrile Butadiene Styrene (ABS). The company has formed a strategic partnership with Nippon A&L Inc. (NAL), Japan, to expand its Styrenics Resins business. This collaboration supports the sale of ABS Resins, AES Resins, ASA Resins, and their alloys with other plastics in the Indian market, making BEPL the leading indigenous company in this segment. Its diverse customer base includes top companies in the automobile, home appliance, electronics, healthcare, and kitchenware sectors.

From a technical perspective, the stock has been forming a symmetrical triangle pattern over the past few weeks, typically a continuation pattern that suggests the stock may resume its prior uptrend after a consolidation period. Recently, the price broke out above the upper trendline of the triangle, which is a bullish signal. This breakout is accompanied by a significant increase in volume, further confirming the breakout's validity. The increased volume during the breakout reflects strong buying interest, enhancing the likelihood of the uptrend's continuation. The stock traded above its 20-day SMA of ₹145.82, reinforcing the bullish trend. The Relative Strength Index (RSI) is at 63. Additionally, the daily MACD has generated a bullish crossover, validating a positive bias. The short- to medium-term target is ₹176, followed by ₹185, with a recommended stop loss of ₹139.

LINCOLN PHARMACEUTICALS .................... BUY ................ CMP ₹699.30
BSE Code : 531633
Target 1 ..... ₹780
Target 2 .... ₹800
Stoploss....₹633 (CLS)

Lincoln Pharmaceuticals Limited has established itself as a key player in the pharmaceutical industry, manufacturing a wide range of pharmaceutical formulations for both the domestic market and export. With its recent entry into the Canadian market and securing approvals from TGA (Australia) and EU GMP, Lincoln Pharmaceuticals is well-positioned for further global expansion. The company is also actively pursuing product registration for its Mehsana plant, in line with its ambitious revenue target of ₹750 crore for FY26.

On the technical front, Lincoln Pharma stock has shown promising signs of a bullish trend. The stock broke out above a key resistance line in the triangle pattern, signalling a potential upward movement. This breakout is accompanied by higher-than-average trading volume, reinforcing the strength of the move. The stock is currently trading above its 20-day Simple Moving Average (SMA), further indicating bullish momentum. Additionally, the 14-period daily Relative Strength Index (RSI) has given a bullish crossover and is on a rising trajectory, which bodes well for continued strength in the stock. The Moving Average Convergence Divergence (MACD) indicator also supports this positive outlook, with the MACD line crossing above the signal line and increasing histogram bars, suggesting that the bullish momentum is gaining strength. Together, these technical indicators point to a strong likelihood of continued upward movement in the stock price towards the level of ₹780 to ₹800. Maintain a stop loss at ₹633.

*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 August 20, 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.