Nifty records ‘Golden Cross’ ahead of election result; ICICI Direct revises FY20 target to 13K

As polling for Lok Sabha elections is underway, Nifty's price structure is indicating a major shift in trend direction.

The index recorded a 'Golden Cross'—an event when a medium-term moving average (50-day) crosses a longer-term moving average (200-day). Similar crossover has also been recorded in about half of the Nifty companies, ICICIdirect said in a report

This has made the brokerage firm to reinforce its positive stance by revising the earmarked target for Nifty at 12,800-13,000 for FY20. It notes:

-Since June 2003, in seven out of nine occasions, Golden Cross on the Nifty has produced a minimum 15 percent return in the following year
-It also corroborates ICICI's CY19 technical outlook, providing a minimum 15 percent return post-general election, that projects a target of 13,000
-Bottom-up approach also validates its target of 12,800
-According to classical technical evidence, 161.8 percent external retracement of last major decline (from August 2018 high of 11,760 to October 2018 low of 10,005), is placed at 12,850.

Golden Crossover

Nifty's 50-DMA (10,890) on March 15, 2019 (Nifty@11,427), recorded a bullish crossover above 200-DMA (10,889), thus generating a Golden Crossover.

As long-term indicators carry more weight, the Golden Cross represents a major shift in momentum from the bears to the bulls and indicates a bull market on the horizon.

Additionally, the long-term moving average (200-SMA is currently placed at 10,960) becomes the new support which is not foreseen to breach in the rising market.

Among Nifty constituents, almost 50 percent of the stocks have already recorded golden crossover. They have a collective weight of 73 percent in the index, signifying inherent strength of the market.

Table: list of top 15 stocks that have recorded golden crossover

Sectorally, financials, capital goods and consumption are likely to outperform.

Since June 2003, the chart of Nifty has signalled nine Golden Crossovers with 78 percent strike rate. The average one year gain has been 19 percent, while minimum gain has been 15 percent. On two occasions signal failed with a maximum drawdown of 4 percent.

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