Nifty has been trading in a downward sloping channel since February 16, 2021. This indicates that the market is passing through a consolidation phase. During this phase, the trend has been choppy and directionless.
A lot of whipsaws with fake breakouts take place in the choppy phase. Mean reversion or fading (buy low and sell high) works out better in this kind of scenario.
So, it has been tough to trade large-cap stocks in the last couple of months.
However, looking at the recent developments on the Nifty charts, it seems that the index is likely to break out from the consolidation soon.
A major reason is the strong breadth in the market. A strong advance-decline ratio in the consolidating market indicates the chances of an upward trend - sooner or later.
Indicators and oscillators like Moving Average convergence divergence (MACD), DMI and Relative Strength Index (RSI) are showing some early signs of a breakout in the index.
Daily MACD has reached above the equilibrium line. RSI has been positing higher bottoms and has also shifted its range upward. DMI indicator has turned bullish, as +DI has crossed –DI line on the upside.
The formation of the higher bottom at 14,416 in Nifty could be an advanced signal of possible upcoming breakout.
The confirmation of breakout in Nifty would come once it sustains above 15,000 level. Above 15,000, Nifty could extend its gains towards new all-time high above 15,431.
Support for Nifty would remain at 14,700 below which possible bullish setup would be violated. However, looking at the other indicators, the chances of a bullish breakout seem higher than a bearish breakout.
Bank Nifty has been one of the major under performers in the recent past. However, a breakout in Nifty could lead to short covering in the Bank Nifty index. Any close above 33,300 in Bank Nifty would result in a breakout from the downward sloping trendline on the daily chart.
Resistance for the Bank Nifty is seen at 34,057, 34,918 and 35,985. Support for the index is seen at 31,900 odd levels.
Here are three buy calls for the next 3-4 weeks:
Natco Pharma | LTP: Rs 940 | Target price: Rs 1,170 | Stop loss: Rs 850 | Upside: 24%
This stock has broken out of a bullish pennant pattern on the daily charts. Rising volumes during the breakout validate the possible upside.
It has been trading above important moving averages, indicating an uptrend on all timeframes. The pharma sector has been one of the best performing sectors and is still holding its strength.
The stock has broken out of the consolidation, which held it back for the last four weeks. Indicators and oscillators like RSI, MACD and DMI have turned bullish on the short-term charts.
Dredging Corporation | LTP: Rs 381.20 | Target price: Rs 475 | Stop loss: Rs 350 | Upside: 25%
Descending triangle breakout is seen on the weekly chart. Volumes have been rising along with the gradual price rise in the last four weeks.
The stock has been finding support on the upward sloping trendline adjoining the previous swing lows.
The 21-week exponential moving average has also been coinciding with the trendline support which confirms the bullish trend reversal.
Indicators and oscillators setup has turned bullish on the short-term charts. The short-term moving averages have crossed long-term moving averages on the upside.
Hatsun Agro | LTP: Rs 818.60 | Target price: Rs 1,050 | Stop loss: Rs 725 | Upside: 28%
In December 2020, this stock broke out from the long-term downward sloping trend line on the weekly and monthly charts.
This breakout was supported by higher volumes, too. Post the breakout, the stock went into a correction phase for the next three months.
In the current month, the stock has resumed its primary uptrend by hitting a fresh 52-week high.
Indicators and oscillators have been showing strength in the current uptrend.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.