Nifty 50: What Is In Store?
The Nifty 50 index staged a smart recovery this week and there are a lot of interesting developments triggered in the Point & Figure chart. Have a look at the daily chart of the Nifty 50 index in the 0.1% box size that is featured below.
As you may recall, the Nifty 50 index made a high of 12,430 on January 20, 2020. The price has since been making a series of lower mini-tops and lower mini-bottom in the Point & Figure chart. For the first time since January 2020, the price has managed to breakout above a prior mini-top. In the process, a bullish sequence of higher mini-bottom is in place now.
There is also a vertical count target of 10,377 which is active and valid. As long as the recent mini-bottom at 8,800 is not breached, I would operate on the expectation that the index is headed to the target of 10,377.
I bought the next tranche of Nifty Mutual fund on Friday and I will exit this recent purchase if the index closes below 8,800.
Let us have a quick look at the Renko chart Nifty 50 in the 1% brick size. There are again some interesting observations that are highlighted in the chart below.
The price is well above the dual moving average and the moving averages are positively aligned. A breakout above the recent swing high at 9,839 would be a healthy sign and strengthen the case for a rally to the vertical count target of 10,377.
- : December 14, 2020
- : B. Krishnakumar
While the undertone seems bullish for the Nifty 50 index, there is a word of caution though. The sharp spike this week has pushed the PF-X% breadth indicator deep into the overbought zone in the 1% box size. Also, the breadth indicator has reached overbought zone in the 3% box size too.
Given this backdrop, there is a strong case for a time and price correction to set-in soon. This is required to cool off the breadth.
Short-term index traders may curtail their enthusiasm and reduce their position size, especially on the long side. The position size can be reduced in fresh positional long trades in stocks too. This is just to ensure that you do not get caught on potential failed breakouts as the breadth is overbought.
Wait for the breadth in 1% box size to cool off into the neutral zone before committing fresh funds on the long side, especially on a positional basis.
Sector wise, I am bullish on FMCG, Consumption, Pharma and select stocks from small & mid cap sectors. Individually, I am looking at Granules, Nestle India, Britannia, Relaxo, Maruti, Mindtree, Shreecement for addition to my portfolio.