Vinay Rajani
Last week, we saw Nifty rising more than 20 percent from the bottom of 7,511 towards 9,038. However, in the last two trading sessions, Nifty retraced more than 50 percent of that entire up move.
The positional trend of Nifty is still bearish as 50-days exponential moving average has been sustaining below 200-days exponential moving average.
In the past, we saw the development of death cross on Nifty charts in September 2019, November 2018 and December 2016 but the gap between these two averages did not enlarge to the extent which we are observing in the current scenario.
The gap between 50-days exponential moving average and 200-days exponential moving average is substantial this time, which indicates the weakness in the overall trend.
Short-term swings have widened in Nifty and 500 points move in a session has become normal nowadays.
On March 23, Nifty completed a fall of 40 percent in the span of 46 sessions, which is the second-fastest 40 percent fall after the bearish markets of the year 1992.
Stocks below 200-days moving average has reached 89 percent, which was at 98 percent and 94 percent in 2008 and 2001, respectively.
As far as support is concerned, the level of 8,095 would play a key role. The level of 8,095 happens to be the 61.8 percent retracement of the entire 20 percent pullback that Nifty registered from 7,511 to 9,038.
Retracement of more than 61.8 percent usually negates the chances of a resumption of the trend. So, any close below 8,095 would be considered bearish and Nifty could resume its primary downtrend.
If Nifty manages to hold above 8,095 then there would be two positive technical developments on the charts.
The first would be the higher bottom and the second would be the formation of inverse head and shoulder on daily line charts.
However, bullish confirmation would only come if Nifty closes above 8,660. Any close above 8,660 without violating 8,095 support could push Nifty towards 9,970, which would be derived from inverse head and shoulder pattern.
Here are three stock recommendations for the next 3-4 weeks:
Nippon India ETF Gold Bees | Buy | LTP: Rs 40 | Target: Rs 44 | Stop loss: Rs 38 | Upside: 10%
Year to date, Nifty has fallen by about 32 percent, while Gold Bees ETF has risen 16 percent.
Gold as an asset class has come out as a real outperformer in the turbulent times of global financial markets.
Gold as a commodity has resumed its uptrend after witnessing a correction. Depreciating rupee against the dollar has also been helping the Indian gold prices to outperform international gold.
Gold bees ETF has formed nice rounding bottom on the daily charts and closed at an all-time high level.
We believe that portfolios should have a higher allocation in gold at least for the next 3-6 months.
Torrent Pharma is one of the few stocks which are trading above its 200-day moving average.
Pharma as a sector is expected to outperform in the current scenario. Depreciating rupee against the dollar could also help this sector to remain strong in the coming weeks.
The stock is maintaining higher tops and higher bottoms on the monthly charts and the recent correction from the all-time high level seems to be the opportunity to create fresh long positions in the counter.
The stock tested its 200-day moving average and bounced recently. RSI has exited the oversold zone on the daily charts.
The stock price has closed above its 5, 10 and 20-day moving average. Indicators and oscillators have turned bullish on the short-term charts.
FMCG sector is likely to do well in the current scenario. Consumer staple stocks can continue to do well in the next 1-2 months.
Currently, a very low number of stocks from the NSE500 segment is trading above its 20-day moving average and this stock falls under that category.
(The author is Technical Research Analyst at HDFC Securities)
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