Share Market Update: Nifty Breaches 50-DMA And Bank, Auto,Metal Shares Decline

Today’s Action

Nifty, -5.7%; Sensex, -5.9%; Nifty Midcap, -4.4%; Nifty Smallcap, -3.2%; Model Portfolio, +0.7%

Market Pulse Confirmed Uptrend

Weakness in the general market persisted throughout the session. Nifty staged a downside reversal and broke below its 50-DMA (9,778). However, we will not consider today’s move as a distribution day as volume was low compared to Friday’s session. Last week, there were two additional follow-through days. Today, Nifty undercuts low of both the additional follow-through days indicating technical deterioration.

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Share Market Tips As Nifty Ends Higher in a Volatile Session

Today’s Action

Nifty, +1.1%; Sensex, +1.2%; Nifty Midcap, +1.3%; Nifty Smallcap, +0.7%; Model Portfolio, +0.00%

Market Pulse Confirmed Uptrend

Nifty opened up to solid gains this morning. It remained volatile during the day but managed to closed in the upper half of the day’s range. Banking stocks led the gains today, especially private banks. On the flip side, Nifty Pharma and FMCG were each down 1–2%. Of 2,110 stocks traded, 985 advanced, 807 declined, and the remaining traded flat.

Our primary indicators remain healthy as the distribution count is zero and leaders are acting reasonably well. Yesterday, distribution day count was down to zero as Nifty rallied 5% from the last distribution day that occurred on April 15. We remain in a Confirmed Uptrend and are open to increasing risk selectively in quality names coming out of proper bases.

Though distribution day is a primary indicator of market weakness, one should also keep a check on other indicators. When in a Confirmed Uptrend, it is an anomaly to see heavy volume with no upward price progress and if we see clusters of this activity we suspect that the momentum may have shifted.

Currently, picking up the stock from a sector as a whole in positive momentum becomes important. Group rank feature can be very helpful. Look for stocks that are among the top 40 groups and show improvement in rank. It has been observed that what is breaking out of a proper base and among top group rank is working well. It is also important that investors don’t play all their cards at once. In our portfolio, we are skewed toward Pharma and Chemical stocks. In the last few days, we had a decent amount of quality leaders in these sectors trading through justifiable entry points.

We would suggest adopting an investment approach where you begin with a small allocation and increase it as and when the market advances further. Without trying to predict and decode stories, we will take what the market gives us and continue to monitor unfolding conditions.

Key News

Axis Bank: The board approved the acquisition of 29% stake in Max Life Insurance. The stock closed 6.5% higher.

Jk Paper: The board approved the buyback of equity shares at a price not exceeding Rs 130 per share and for an amount not exceeding Rs 100 crore. The stock advanced 4%.

T V S Motor: The company approves issuing NCDs up to Rs 500 crore on a private placement basis. The stock closed 1% lower.

Natco Pharma: The company gets USFDA approval for its first sANDA product from its new drug formulations facility in Visakhapatnam. The stock closed 1% lower.

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Nifty escapes Distributions; ends below 9000

Today’s Action

Nifty, -3.0%; Sensex, -3.2%; Nifty Midcap, -3.1%; Nifty Smallcap, -3.8%; Model Portfolio, 0%

Market Pulse Confirmed Uptrend

Indian markets reacted sharply to the global cues after prices of WTI crude crashed and landed in negative territory for a while. Nifty gapped down around 250 points and traded sideways in the first half of the day’s session. Post noon, it was a cup-shaped trading session as buyers outweighed sellers. 84% of Nifty50 stocks declined today, led by Indusind Bank (Nse) (-12.3%) and Bajaj Finance (-9.1%). On the flip side, Dr Reddys Labs. (Nse) (+4.4%) and Bharti Infratel (+2.3%) were the major advancers. 

Nifty escaped distribution as today’s volume was slightly lower than that of the previous session.

Barring Nifty Pharma (+2.5%), all the sectoral indices closed lower. Nifty Pvt Bank (-5.9%), Bank (-5.4%), and Nifty Auto (-5.3%) were the major decliners. Nifty Metal and Media indices closed more than 5% lower. Of 2,115 stocks traded, 495 advanced, 1,311 declined, and the remaining traded flat.

We continue to be very selective about taking any fresh positions. It is important that investors don’t play all their cards at once. We would suggest adopting an investment approach where you begin with a small allocation and increase it as and when the market advances further.

Without trying to predict and decode stories, we will take what the market gives us and continue to monitor unfolding conditions. Stocks with higher relative strength and superior fundamentals can do well. Some leading stocks have sharply corrected. Wait for them to put in at least a short period of consolidation and show a constructive breakout from that range. Buying without this period of constructive behavior into a straight upmove off the bottom, puts you at a risk of drawdown.

Key News

Icici Bank The stock declined sharply after reports of $100M exposure to Ocean Tankers, a unit of Singapore oil-trading firm Hin Leong Trading.

Morepen Laboratories: Its shares hit an upper circuit after the company received license to manufacture Hydroxychloroquine from Himachal Pradesh State Drug Controller.

IT stocks came under pressure as the U.S. President tweeted about plans of temporary suspension of immigration.

Aurobindo Pharma The USFDA classified its unit IV of Hyderabad as voluntary action indicated (VAI).

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Stock Market Update: Nifty succumbed to profit booking & ended flat

Today’s Action

Nifty, -0.1%; Sensex, +0.2%; Nifty Midcap, +0.5%; Nifty Smallcap, +0.4%; Model Portfolio, -1.4%

Market Pulse Confirmed Uptrend

After opening more than 100 points higher, Nifty succumbed to profit booking and ended flat. It was a highly volatile trading session. Only 28% of Nifty50 stocks advanced today, led by Tata Motors (+4.7%) and Sun Pharm.Industries (+3.6%). On the flip side, Hindalco Industries (-6.2%) and Jsw Steel (-5.5%) were the major decliners.

On the sectoral front, it was a mixed reaction. Nifty PSU Bank (+4.2%) and IT (+1.6%) were the major advancers. On the other side, Nifty Metal (-3.3%) and FMCG (-2.1%) were the major decliners. Of 2,125 stocks traded, 1,150 advanced, 683 declined, and the remaining traded flat.

We continue to be very selective about taking any fresh positions. It is important that investors don’t play all their cards at once. We would suggest adopting an investment approach where you begin with a small allocation and increase it as and when the market advances further.

Without trying to predict and decode stories, we will take what the market gives us and continue to monitor unfolding conditions. Stocks with higher relative strength and superior fundamentals can do well. Some leading stocks have sharply corrected. Wait for them to put in at least a short period of consolidation and show a constructive breakout from that range. Buying without this period of constructive behavior into a straight upmove off the bottom, puts you at a risk of drawdown.

Key News

DGCA has ordered airlines not to take bookings from May 4 as the final decision is awaited. Shares of Interglobe Aviation (-6%) and Spicejet (-1.7%) have declined sharply.

Fitch has downgraded India’s economic growth forecast for FY21 to 1.8% from 4.6% previously.

Wockhardt received the Qualified Infectious Disease Product (QIDP) designation for its novel antibiotic WCK 6777 from the USFDA.

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Technical analysis: Breakouts, A Key To Materialize Gains

Even when the market is in a Confirmed Uptrend, it is important to initiate your positions at the proper time in stock. A breakout from a base pattern is considered an ideal time to buy a stock. When markets are correcting, three out of four stocks feel the pressure. Even fundamentally strong stocks with good financial strength and growth story fail to deliver results expected of them. So, even when the market seems to be reviving, one feels inhibited to actively take positions in individual stocks. Before the situation becomes clear, all good stocks would have already rallied and what’s left is a lost opportunity.

How does one cope and find a reliable and profitable way out of this randomness? Thanks to technical analysis and historical research, there are tools that can bring some method to this madness and be beneficial.

What is a breakout?

A breakout is the key to realize your reward that you earned through patience and extensive stock selection. Almost all rallies in stocks are preceded by strong and clear breakouts. When you have selected a stock with a convincing growth story but are confused about when to make an entry so as to make profits with minimum risk, that’s when you observe the price chart closely. When a credible breakout is observed, it’s the perfect time to put your money in the stock.

A breakout is a phenomenon that a stock exhibits after making a sound base pattern (any of the five bases), indicating that it’s ready for a rally. There’s a set pivot price which is dependent on the shape and form of the base pattern (like cup-with-handle, saucer-with-handle, flat base, etc.). When the stock crosses and ends above that pivot price, it’s said to have broken out and is set for further upside.

Example

Here’s an example of a successful breakout. Coromandel International formed a cup-with-handle base, as visible on the daily chart. The stock broke out of its pivot price on strong volume and progressed well. Subsequent to the breakout, the stock gave more than 20% return in seven weeks.

Breakouts-TechnicalAnalysis-Stocks

Signs of a good breakout

  1. The base pattern of the chart from which the stock is breaking out from should be convincing with its shape, depth, and price-volume action along its formation.
  2. Ideally, a good breakout is supported by strong volume, and is typically 40% higher than 50-day average volume. Strong volume indicates credible participation from institutional investors. Therefore, the stronger the volume is, the healthier the breakout will be.
  3. Strong price action is favorable in a breakout. Gap up movements (stock opening significantly above previous day’s close and maintaining the gain) and stock ending near the day’s high are good signs to see accompanying breakouts.
  4. A good breakout should have the support of a Confirmed Uptrend in the overall market. Breakouts in such markets have a higher chance of strong rally.

Related: 

Share market basics: Overhead Supply Can Repulse A Stock’s Climb

When To Buy Growth Stocks: How Pyramiding Up Can Be As Easy As A Cup Of Coffee

How Relative Strength Rating Helps You Pick Outstanding Growth Stocks

Read our last week’s article on:Checklist to a Simple Investment Routine

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