- : June 13, 2021
- : B. Krishnakumar
Nifty IT Index: Case Study
Let us take a look at the Nifty IT Index this week. This index has been consolidating in a tight range since January 2021. The price has made decisive breakout from this range this week and closed at fresh all-time highs on Friday.
Here is the Point & Figure chart of the Nifty IT index with vertical count targets plotted from the bullish ABC pattern.
The price chart above is very bullish and the vertical counts indicate the scrip for further upside. Let us also take a quick look at the performance of the index in relation to the Nifty 50 index. Featured below is the Relative Strength chart of Nifty IT index versus Nifty 50 index.
As highlighted in the above chart, the prior resistance is now acting as support in the relative strength chart. And, the ratio chart has also formed a higher swing low and turned into a column of X in the above 1% chart suggesting improvement in the relative strength.
As observed earlier, there is a price breakout from a trading range, and I am anxiously waiting for a similar range breakout in the relative strength chart too. Whenever that happens, it would an important confirmation that the IT index is set to deliver better returns.
Keep an eye on this index and more importantly on the breakout from the range in the RS chart.
As far as other sectoral indices are concerned, I am bullish on Nifty Pharma, Nifty Metals, Nifty Commodities and Nifty CPSE/PSE.
After a brief cool-off, the metals index displayed sharp reversal in price and RS chart on Friday. Most stocks from this sector offer a low-risk entry.
Similar to the Nifty IT index, the Nifty Pharma Index too is setting up well after a brief period of underperformance. Let us keep this one too in our watchlist and lookout for the signs of potential outperformance going forward.
Before we wind up, I wish to bring to your notice the sectoral indices offered by the Bombay Stock Exchange. There are several interesting sectoral index at BSE and I was particularly interested in S&P BSE Utilities Index and the S&P BSE Power Index. Both these indices have quite a few power and power related stocks as their constituents. Here is a quick look at the top 10 stocks from S&P BSE Power index having the max weightage in the index.
These stocks together account for about 92% of the index weightage. Here is a quick look at the relative strength chart of this index versus Nifty 50.
If you notice, the price is on the verge of breakout above all downsloping 45-degree trendlines in the chart. The performance of this index has been impressive and the RS chart in lower 0.25% x 3 box size is impressive too.
I have given the index constituents list too. You can take a look at the individual price & RS chart of these constituents and arrive at an appropriate strategy.