From the bottom of 10,790, registered on September 24, 2020, Nifty saw a sharp recovery towards 11,578.
The index has registered a rise of more 788 points from the recent bottom in the span of just 6 trading sessions.
The bottom of 10,790 happened to be 23.6 percent Fibonacci retracement of the entire upswing seen from 7,511 (March 24, 2020 bottom) to the recent high 11,794 (August 31 top).
In the bounce of 788 points, Nifty has registered two unfilled gaps. The first gap was registered on September 28 between 11,072 and 11,099 and the second gap was registered on October 1 between 11,295 and 11,347.
According to the gap theory, this development can be considered as a breakaway gap followed by a runaway or measuring gap.
The gap of 11,295-11,347 is a runaway gap, which is usually a midpoint of the upward rally and projects the upside target above 11,800 levels in the Nifty.
The benchmark index has reclaimed its level above 20 and 50 DMAs. Now, Nifty is placed above all important moving averages, indicating an up-trend on all timeframes.
However, lower top and lower bottom formation are still intact and the same could provide supply levels before surpassing the previous top of 11,618.
The best possible way to come out from the recent complex technical setup of the market is that the index sees a small correction, which forms a higher bottom and then the index surpasses the previous top with a higher top.
The resistance of downward sloping trendline, adjoining the previous two swing tops of 11,794 (August 31) and 11,618 (September 16), has been taken out.
An upward sloping trendline adjoining the major monthly closing bottoms of September 2017 and October 2018 was also projecting strong resistance at 11,500 odd levels and the same has now been taken out.
This development is a good sign for the bulls.
Support for the Nifty is seen at 11,180, which should be kept as a stop loss in long positions.
Bank Nifty has registered a rise of almost 12 percent from the recent bottom of 20,405 (September 24) to 22,768 (October 5).
On October 5, Bank Nifty formed a long-legged “Doji” candlestick pattern on the daily chart, which could result in short-term profit-booking.
The high of this candle is at 22,768 which would act as resistance for the short-term.
In a nutshell, Nifty has closed on a strong wicket. It has got an upside target of 11,800 for the short-term.
Once 11,800 is surpassed, it will be considered as the resumption of an uptrend.
In the short-term, we should not rule the possibility of minor correction, which could drag Nifty towards 11,300 odd levels.
As long as, Nifty remains above 11,180, the primary uptrend would remain intact. From the sectors, IT, Pharma, Auto and FMCG are looking strongest for the medium-term.
Here are three buy calls for the next 2-3 weeks:
CEAT | Buy | LTP: Rs 1,018 | Target price: Rs 1,120 | Stop loss: Rs 970 | Upside: 10%
This stock has broken out from multiple downward sloping trendlines on the weekly charts.
Volumes have been rising along with the price rise for the last six weeks. The stock price has surpassed the previous top resistance of Rs 976.
Bullish rounding bottom formation is seen on the weekly charts, indicating the continuation of an uptrend.
The stock has been finding support at its 20-week EMA for the last couple of months.
Trend breakout is registered by RSI on the weekly charts, indicating fresh up-move.
Weekly MACD is trading above its signal and equilibrium line.
Dabur India | Buy | LTP: Rs 521.65 | Target price: Rs 560 | Stop loss: Rs 500 | Upside: 7%
The stock has given a symmetrical triangle breakout on the daily charts. Volumes have gone up along with the price rise in the recent past.
The stock has surpassed the previous top resistance of Rs 514.70. The long build-up is seen in the October series, where OI has gone up more than 15 percent with a price rise of 5.5 percent.
ADX indicator crossed –DI line on the upside, indicating the beginning of bullish momentum.
RSI and MACD are also showing strength in the current uptrend.
JSW Steel | Buy | LTP: Rs 291 | Target price: Rs 312 | Stop loss: Rs 278 | Upside: 7%
The stock price is on the verge of giving breakout from consolidation which occurred in the last six weeks, between Rs 292 and Rs 268.
The stock is trading above all important moving averages, indicating uptrend on all timeframes.
Indicators and oscillators have turned bullish on weekly and monthly charts. Besides, the metal sector has resumed its primary uptrend.
(The author is a technical research analyst at HDFC Securities)
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