The markets have been on a roll this year. The global equities had a strong year and Indian equities were no exception. The headline Index NIFTY50 has gained 17.32% on a YTD basis. The broader markets fared even better with the broad market index NIFTY500 returning 22.75% over the same period. Looking at sector indices, all sectors have ended positively with the maximum gains coming from the Realty space with the NIFTY Realty Index gaining 74.97%. In comparison, Banknifty has performed least returning 9.93% on a YTD basis.

The markets in general are undoubtedly overheated and stare at imminent consolidation. So, when it comes to looking for stocks that still have room for themselves, is an equally difficult task. During such times, it is of paramount importance that one should look for stocks that have either a strong or improving relative strength or have not run too far ahead of their curve.

One such stock is that of an energy major, Reliance Industries Limited (NSE: RELIANCE). A closer look at the technical charts and the stock’s performance throws interesting insights.

RELIANCE has the second largest weight in the Nifty Index at 9.11% after HDFCBANK which has the highest weight at 13.25%. When we look at the Nifty Energy Index, the sector index of which RELIANCE is a part, the stock has the highest weight of 31.32%. The energy index’s top five constituents make up over 77.09% of the Index. RELIANCE alone makes up one-third of this sector index.

Given its important and heavy place in both the frontline as well as the sector Index, RELIANCE has relatively underperformed both the NIFTY ENERGY Index and NIFTY50 on a YTD basis. Looking at the YTD data, while the NIFTY ENERGY Index and NIFTY50 have returned 26.04% and 17.32% respectively on a YTD basis, RELIANCE has returned just 9.32% over the same period.

This leaves a lot of room for potential resilient performance and some alpha generation in the stock.

The weekly chart for RELIANCE shows that over the past three years, the stock hasn’t practically returned anything. It tested the level of Rs. 2482 in October 2021; since then, it has just moved sideways in a broad trading range. Besides making incremental highs, it has failed to get any directional uptrend. This means that anyone who has invested in the stock around or after October 2021 may find herself sitting with nil to very negligible gains.

However, going by the recent price action, the stock looks set for a fresh breakout again. When this is read along with other technical indicators, it paints a prettier picture.

Going by the pattern analysis, RELIANCE is seen trying to break out from a rectangle pattern. The potency of the move can be gauged by the price making a higher bottom inside the rectangle before trying to break out of it.

On-Balance Volume, which is a volume oscillator, has already hit a new high before the stock doing so; this is a sign that the attempt to break out of this technical pattern is supported by higher volumes. The rolling of the stock inside the improving quadrant of the RRG hints at a potential beginning of a phase of relative outperformance of the stock against the broader markets.

While RSI marks a fresh 14-period high, the weekly MACD stays positive and above its signal line.

If the markets consolidate, the stock is likely to show strong resilience and it enjoys robust support in the Rs. 2300-2400 range so long as it keeps its head above Rs. 2300 level. Anty slip below this will negate this technical reading.

Going by this, even if we see some temporary retracement or minor consolidation, the stock qualifies for inclusion in the portfolio. One can start to accumulate RELIANCE at current levels with each minor decline if at all that happens. Applying the classical price measurement implications, the stock has the potential to test Rs. 2900 levels in the coming year which would mean a potential price appreciation of 13.25% from the current levels.

Foram Chheda, CMT
Technical Research Analyst

The Nifty 50, India’s premier stock market index, has been on a roller-coaster ride in recent months. After hitting a bottom near 16,800 levels in March, the Nifty embarked on a five-month bullish journey, gaining over 3000 points. However, in the past month, the index has been retracing its steps, raising concerns among investors. In this technical note, we will take a closer look at the current technical setup of Nifty on the charts, the key support levels, and the patterns that traders need to keep a close eye on.

Critical Support at 19,250

As of now, the Nifty 50 is hovering near the 19,250 level on a weekly closing basis. This support level is of paramount importance as it coincides with the 23.6% retracement level according to the Fibonacci retracement levels. Maintaining a weekly close above 19,250 is crucial for the Nifty’s continued upward momentum. Any dip below this level could signal further weakness, potentially leading to a test of the 18,800 support level.

Daily Chart Analysis

Zooming in on the daily chart, we observe the Nifty trading within a descending triangle pattern. The current price action finds support along the horizontal line of this pattern. While the weekly chart emphasizes the importance of the 19,250 level, the daily chart provides a slightly different perspective.

As of now, the daily charts indicate a narrow range of consolidation. The Nifty’s upside remains capped near the 19,550 level. This suggests that while the index is not breaking out into new highs, it is also not plummeting into a full-blown bear market. Traders must closely monitor this pattern as a breakout from the horizontal trendline could be a game-changer.

Descending Triangle Pattern

A descending triangle pattern is a classic technical formation that often precedes significant price movements. In this pattern, lower highs converge with a horizontal support line. The narrowing range of price movement indicates indecision in the market, with buyers and sellers in a tug-of-war. The breakout from this pattern, whether to the upside or downside, can lead to substantial price swings.

What Lies Ahead?

As traders navigate the current landscape, it’s essential to remember that market dynamics can change rapidly. While the Nifty 50 is at a critical juncture with key support levels and a descending triangle pattern, external factors such as economic data, geopolitical events, and global market trends can influence its direction.

Investors should keep a close eye on the Nifty’s weekly closing levels, with particular attention to the 19,250 mark. A sustained breach below this level could indicate a shift in market sentiment and potential further downside. Conversely, a rebound from this level could reignite bullish momentum.

The Nifty 50 has experienced a remarkable journey in recent months, with significant gains followed by a retracement. It currently stands at a crossroads, with the 19,250 support level and a descending triangle pattern providing important technical signals. Traders and investors must remain vigilant and adapt to changing market conditions as they monitor the Nifty’s progress. While technical analysis can provide valuable insights, it is essential to consider the broader economic and global factors that can influence the index’s future movements.

– Foram Chheda, CMT