The rage is on! Action to shift to mid-caps, small-caps

If bulls are able to cement their position above the breakout levels of 8,450 for at least four trading sessions, we could see index get into a turbo mode. In a bull markets, corrections are more unrestrained. However, recoveries tend to be equally swift. For Nifty to attempt previous highs, spring bottom (support of 7,950) needs to be defended.

Jul 02, 2015 03:07 IST IIFL Pritesh Mehta |

After knocking on the 8,400 door (resistance levels) on four occasions in last three months, bulls finally managed to make their presence felt in a roller-coaster week underway. With all the upheavals and uncertainty taking place in global markets, index witnessed a knee-jerk reaction as the opening bell rang on Dalal Street in Monday’s trade. But the recovery thereafter has been jaw-dropping. Taking support of its 50-DMA, index has given a breakout above the resistance of its downward sloping trendline.
 
In our blog dated, June 18th 2015 (Don’t lose hope!) we did mentioned that index will charge towards 8,400. If bulls are able to cement their position above the breakout levels of 8,450 for at least four trading sessions, we could see index get into a turbo mode.

In a bull markets, corrections are more unrestrained. However, recoveries tend to be equally swift. For Nifty to attempt previous highs, spring bottom (support of 7,950) needs to be defended.
 
Weekly chart of Nifty


Nifty’s weekly chart does inspire a picture of confidence. A triangle pattern on the index is accompanied with a breakout from a falling wedge pattern on the RSI indicator. With such strong chart patterns, the Greek tragedy appears to be less tragic as the bulls have finally put the entire Greek episode behind and appear raring to roar.
 
Most of the index heavyweights have delivered strong returns in last two weeks. However, CNX 500 and CNX MidCap index both have formed strong chart patterns, which suggest that the next leg of rally could also see midcaps and smallcaps participating. 
 
Daily chart of CNX 500


CNX 500 index has crossed above the neckline of a bullish head & shoulders pattern but it is yet to clear the hurdle of downward sloping trendline placed around 7,050 levels. If index manages to stage a breakout above the same, the run up could be extremely parabolic.
 
Recent recovery has seen the index moving higher with the support of its ascending trendline, which is inherently considered as a bullish structure and we expect the buying momentum to ascent the index higher.
 
During the phase of correction, it handsomely held above the support of its 50-WMA, which incidentally turns out to be a peak during September 2014. Such price behaviour corroborates well with the change of polarity principle with earlier resistance now turning into major support. It provides a base for propelling strong buying momentum.
 
Have identified two stocks from CNX 500 index which could provide a strong rally in the near term.
 
Daily chart of Motherson Sumi


It is a classic example of bullish consolidation. Motherson Sumi is consolidationg at the top for last 10 weeks after a sharp rally in 2013 and 2014. Normally such consolidation in uptrending stocks tends to break on the upside. We expect stock to test the levels of Rs560 in the near term. 
 
Daily chart of Indiabulls Housing Finance


Indiabulls Housing Finance is on the verge of making a new high, which is suggesting that consolidation phase of last four months is about to come to an end. We expect stock to rally towards the target of Rs700.
 
What’s cooking in cement?

Central government’s focus on infrastructure and housing schemes is likely to result into strong demand for construction materials like Cement. Entire space is showing signs of reversal after a sharp correction in last four months.
 
Daily chart of ACC


 
ACC has been through a lot after making a high of Rs287 in March. Thereafter it made a bottom of Rs214. Price action post that could well be described as consolidation. Moreover, it is a classic case of resistance turning into support as it managed to find support at its earlier peak of 2012. On the short-term charts, it has given a breakout from a bullish head & shoulders pattern, suggesting that the stock has bottomed out and it is likely to resume a new uptrend. A rally towards Rs270 is very much possible in next few weeks.
 
After making a peak of Rs1,775 in early-March, the stock had seen a sharp decline. Thereafter it was on the verge of breaking down from a bearish head & shoulders pattern. However, it reversed from the neckline. Whenever, a bearish pattern is violated, the implications of the same tend to be extremely positive. On Wednesday, the stock broke out from the resistance of its downward sloping trendline. A move till Rs1,580 appears to be well within the reach. 
 
Daily chart of Ambuja Cements

 
Ambuja Cement has been through a lot of turmoil after making a high of Rs287 in March. Thereafter it made a bottom of Rs214. Price action post that could well be described as consolidation. Moreover, it is a classic case of resistance turning into support as it managed to find support at its 2012 peak. On the short-term charts, it has given a breakout from a bullish head & shoulders pattern, suggesting that the stock has bottomed out and is likely to resume a new uptrend. A rally towards Rs270 is very much possible in next few weeks. 

The author is Senior Technical Analyst, IIFL

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