Crucial times ahead

Nifty (10791)

Nifty closed at 10791, up 67 points (0.6%) from last week’s close. It was a muted week with the benchmark swinging between 223 points (2%) only. Overall Nifty is range bound between 10450 and 11000. This is happening since November 2018. It is obvious that decisive break out on either side could lead to big movement.

It seems to us that downside break is more likely in coming days considering Nifty is trading at a 26+ price earning. This is a level where long term investors are not comfortable to buy. Study of historic p/e supports our view. If it falls, timing is anybody’s guess.

Nifty is being maintained by HDFC twins, Reliance and Infosys. These stocks have high weightage in the benchmark. Picture outside Nifty is gloomy where most of the mutual funds are generating a negative return.

If we consider the weekly chart of Nifty, there is a distribution pattern visible. Nifty is probably in process of making a bearish head and shoulder pattern. Obviously, the pattern is not yet completed. According to theory, this reliable reversal formation is never completed unless it breaks the neckline. In the current case which is at 10000 level.

Let us take a glance at the chart.     

This distribution pattern, if at all, is forming since December 2017. Completion of this 1+ year duration pattern will set panic.

If we subscribe to this idea, sell on rise could be the strategy. On short term basis weekly close below 10700 may trigger a fall towards 10450-10500.

However, stay above 10800 is short term bullish.

Decisive crossover and stay above 11000-11100 could be good news for bulls. 

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   Bank Nifty (26867)

Chart of Bank Nifty is relatively stronger, thanks to HDFC Bank. The stock bears nearly one-third weightage on the index.

However decisive break and stay below 26350 may trigger another 1000 points fall. 

Crossover and stay above 27700-27800 could bring relief for bulls till 28400, the all-time high.

A distribution pattern somehow similar to Nifty is forming in Bank Nifty also. Here the panic point is 23500.

The chart is given below.

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  Reliance Industries (1232)

The stock has 9.77% weightage in Nifty. It enjoys the second highest weightage only after HDFC Bank, which bears 10.4% weightage.

The stock has outperformed in 2019 by registering a 10% gain compared to 0.37% fall in Nifty. It is quite evident that Reliance has taken a key role to maintain Nifty to sustain at a relatively high level.

The stock is retracing from 1321, taking resistance at the all-time high of 1329. This could be a double top, though is too early to say.

However, a close look up in daily charts reveals a quite interesting scenario. It is a classical bearish head and shoulder pattern in making. 1210 and 1190 are downward trigger points.

On the higher side crossover and stay above 1260-1265 could negate this bearish setting.

Disclaimer - The views here expressed and the charts shared are strictly for educational purpose and not a guideline for buy or sell. The author will not be responsible for any loss, that may occur.