Nifty made a low of 7,540 on 8th September and provided a strong pullback. Traders who showed nerves of steel (those who were not sucked into bearish bias on the street) got a perfect opportunity to come back into markets. So far we have witnessed a rally of more than 7% and the way broader markets have participated in the current pullback, it seems that serenity is back on Dalal Street.
On YTD basis, Nifty is down ~2%, but sentiment has improved remarkably after it took support at its 100-WMA on four occasions since September 2015 and bounced back.
Nifty weekly chart
Magic of this moving average can be seen on other important indices as well.
-CNX Bank weekly chart
CNX Bank index has bounced back after taking support at 100-WMA and since then has provided returns of 11%.
CNX FMCG weekly chart
On four instances, FMCG Index managed to defend the support of 100-WMA and has gradually moved higher in September.
CNX Nifty MidCap 50 weekly chart
After failure to break above the multiple tops in August, CNX Nifty MidCap 50 corrected sharply. Traders who ignored the bearish noise and followed the magical moving average realized that patience finally pays off. Three failed attempts to sustain below the same provided a sucker rally of 16.5%.
Patience of traders was also tested in this week’s trade. After a wild August, trading range got narrowed which led to choppy movement in market. Nifty this week, made NR4 (Narrow Range of last 4 days) on the daily chart after the index had the smallest range of prior 3 days. Once the index moved above high of smallest bar (i.e. 8,161) and sustained above the same, buying momentum intensified and it made a high of 8,246. We expect index to build on Friday’s momentum and rally towards 8,380 in the near term.
Despite the correction in broader markets, stronger stocks will continue to do well.
Berger Paints is a classic example of a stock, which has not looked back after making an intermediate bottom in last week of August. It also retraced 38.2% of its previous rally. After making a low of Rs195, the stock gradually moved higher and in last one month went through a period of sideways consolidation. In this week’s trade, it broke out from this consolidation suggesting more upside in the near term. A possible rally towards Rs250 is on the cards.
Maruti is a typical uptrending stock which tends to go through periods of correction, but those are just dips in an ongoing bull market. On several instances, it found support around its rising trendline and bounced back. The same coincides with the support of its 100-DMA.
The author is Senior Technical Analyst at IIFL
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