NIFTY Index Chart Analysis

Leading benchmark index Nifty 50 scaled to a new lifetime high with a surprise move last week. For the fourth consecutive week, Nifty hit a new lifetime high. Last Thursday i.e. on September 12, in a surprising move, it rallied over 490 points from the day’s low and closed at an all-time high. The higher volumes than the previous week show buying interest. All sectors and broader market participation are big positives at the new high.

The index made higher lows during the last week and broke a nine-day base. It formed a bullish engulfing candle on the weekly chart and erased all the implications of the previous week’s bearish engulfing. On several occasions in the past, Nifty has formed bearish engulfing candles at the tops. This time, it failed to get confirmation of its implications. Back-to-back outside bars show increased trading ranges in a week.

Against this background, the index does not have any weaker signs now. After this massive move, the index has been consolidating into a tight range of 150 points for the last three days. With this tight range, the daily Bollinger bands began to contract, which is an indication of consolidation. However, there are concerns about the trend. The index deviated from the mean averages. It is almost over 2,960 points, or 13.20 per cent away from the 50-week average.

The weekly Bollinger bands have expanded to the maximum. In normal conditions, the price tries to be closer to the mean average, and when it deviates, it will return to the mean average. At the same time, the weekly MACD, which is far away from the zero line, is a sign of an overstretched condition. The weekly RSI is also in the overbought condition. With the recent consolidation, it came down from an extreme zone.

Both indicators have developed bearish divergences in daily and weekly timeframes. The overstretched condition may not continue for a long period. At some point in time, profit booking will emerge, and the price will experience a mean reversion. The overbought situations may impact the trend’s strength sooner or later. The 10-week average has been acting as strong support for the past few weeks, currently at 24,865. Last Monday’s low was 24,753.

For the near term, this zone is crucial for sustaining the trend. Unless Nifty forms a lower low below the level of 24,753, the uptrend is intact. Before this, the 8 EMA of 25,247 and the 20 DMA of 25,102 will act as short-term support. Any decisive close below 24,753, with additional distribution days, will lead to a deeper correction. Currently, Nifty holds three distribution days. There is not much change in the RRG charts. Nifty IT, Pharmaceuticals, FMCG and Consumer Durable indices are in the leading quadrant.

The oil and gas index has entered into the leading quadrant. These sector stocks may outperform the broader market for some more time. The automotive index is in a weakening quadrant and may underperform. The PSU bank index is improving its momentum in the lagging quadrant. Watch out for some stock-specific activity. In Nifty 50 stocks, only 19 are in the leading quadrant with better relative strength and momentum.

Another 11 stocks are in the improving quadrant. As the majority of the stocks have better or improving relative strength, this may protect against a big fall in the index. In a nutshell, the trend is strong and intact. But it is time to be cautious as the market has deviated from its mean averages. We repeat: Stay with defensive stocks with high relative strength. Protecting the profits is the primary goal now. A very cautious approach is needed for the next 2-3 weeks.

STOCK RECOMMENDATIONS

BLUE STAR LIMITED ............................. BUY .................. CMP ₹1,887.45
BSE Code : 500067
Target 1 .... ₹2,180 
Target 2 ..... ₹2,300 
Stoploss....₹1,750 (CLS)

Blue Star is India’s leading heating, ventilation, airconditioning and commercial refrigeration company. It manufactures ACs, air purifiers, air coolers, water purifiers, cold storage and speciality products. The company offers turnkey solutions for mechanical, electrical, plumbing and fire-fighting projects. It has seven manufacturing facilities in India and over 4,000 channel partners. The company is a market leader in conventional and inverter ducted airconditioning systems and scroll chillers.

The stock closed at the prior pivot of an eight-week flat base. It also broke out of a three-week tight range. The volumes recorded are above average, which validates the breakout. It also registered the highest closing. The Relative Strength (RS) line is at a new high, showing an outperformance compared to the broader market. For the past three years, the stock has not made a lower swing low and is in a strong uptrend. Trading 22.22 per cent above the 30-week average, it is an uptrend.

It is 10.15 per cent above the 10-week average. The 10-week average is above the 30-week average, showing a strong trend. The weekly MACD is about to give a bullish signal. The RSI took support at the 60 zones, and bouncing is another sign of resuming the uptrend. The number of institutions invested in the stock increased to 296, indicating buyer demand. The EPS is expected to rise to ₹28.45 in FY 2025 from ₹20.77. Buy this stock above the zone of ₹1,930-1,970. Maintain a stop loss at ₹1,750. The shortterm to medium-term target is at ₹2,180 - ₹2,300.
 

PC JEWELLER LIMITED ......................... BUY .................... CMP ₹151.35
BSE Code : 534809
Target 1 ..... ₹200
Target 2 .... ₹220 
Stoploss....₹127 (CLS)

PC Jeweller is engaged in the business of trade, manufacture and sale of gold, diamond, precious stone, gold and diamond-studded jewellery as well as silver articles. It offers a wide range and variety of gold, diamond and silver jewellery to cater not only to wedding requirements but party and daily wear also. As of March 31, 2024, the company had a total of 60 retail showrooms including six franchisee showrooms across India covering 12 states and three Union Territories.

Technically, the stock has recently broken out of this long consolidation, which signals the start of Stage 2, characterised by an upward trend with increased volume.

The stock meets the criteria of the trend template of Mark Minervini and the stock is trading above its 50, 150 and 200 DMA while all the moving averages are in the desired sequence and trending higher. Its Relative Strength (RS) rating of 97 is great, indicating outperformance as compared to the other stocks. The buyer demand is at A+ which is evident from the stock’s recent popularity, making it a compelling bet for short-term to medium term. Maintain a stop loss at ₹127 with a target price of ₹200 - ₹220.

*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 September 17, 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.