In the age of memes and viral trends, it is fascinating to see how market sentiment often mirrors what is being discussed in popular culture. While social media and messaging apps are rife with bearish memes about the markets, there might be an underlying twist in the tale.
Are we on the cusp of a market reversal when no one expects it to rise? Could the bearish outlook be the very signal of an impending bullish turn?
The Nifty50, often the centre of market focus, is showing some strength as it holds its ground near 22,800. However, the Nifty Midcap 100 index is intriguing, signalling some exciting trading opportunities.
After facing substantial corrections over the past few months, the market sentiment has been relatively cautious, with many midcap stocks losing 20-40% of their value. Yet, there is a conspicuous sign of a reversal on the charts, and traders might witness a momentum shift.
Nifty Midcap100 Daily Chart
Source: TradePoint, Definedge Securities
The Bullish Black Swan harmonic pattern is visible on the daily chart of Nifty Midcap 100, indicating the index’s reversal sign. Harmonic patterns are reversal patterns calculated using multiple Fibonacci ratios.
In addition, the Relative Strength Index (RSI), a key momentum indicator, shows a positive divergence.
If the index holds its recent low of 48,500, it could resume its bullish trend and potentially reach its all-time high of 60,900, making this an exciting phase for midcap traders.
As we zoom in on the individual stocks within this index, two stand out: Jubilant Foods Ltd and UPL Ltd. Both stocks have shown remarkable technical patterns on their respective charts, suggesting they are poised for strong upside movement.
Jubilant Foods Ltd, a leading player in the food industry, operates under the banner of Domino’s Pizza and Dunkin’ Donuts in India. The company has consistently expanded its footprint across the country and has established itself as a market leader in the quick-service restaurant sector.
Source: TradePoint, Definedge Securities
On the daily chart, the stock is currently taking support at the 200-EMA (Exponential Moving Average) channel, which is formed using both the high and low of the 200-day EMA and often acts as a strong support level.
As the stock bounces off this channel, it signals that it is in an accumulation phase, with smart traders positioning themselves for a potential rally.
Additionally, the positive divergence in the RSI further strengthens the case for a bullish reversal, and the momentum is starting to pick up. If the stock continues to hold at or above the 200-EMA, it could surge, offering a promising upside potential.
UPL Ltd, a global leader in agrochemicals and crop protection, has long been a strong performer in the agricultural sector. The company operates in more than 130 countries and offers a wide range of solutions to improve crop yields and protect them from pests and diseases.
Source: TradePoint, Definedge Securities
Analysing the UPL’s chart setup, the stock recently broke out of a falling trendline (blue) on the 0.50% X 3 Daily Point & Figure chart, signalling the end of the downtrend and a potential bullish move ahead.
Point & Figure charts are especially useful in identifying breakouts, as they filter out market noise and focus on price action. Following this breakout, UPL has consolidated above the breakout level, indicating that the stock is forming a base for the next move higher. The consolidation takes place in the form of a four-column triangle, a pattern often preceding a strong trend continuation.
The recent breakout from this formation suggests that the stock is potentially poised to resume its bullish trend, providing a robust entry point for traders looking to capitalise on its growth potential.
Conclusion
The Nifty Midcap 100 index shows promising signs of a reversal after a significant correction period. The presence of a Bullish Black Swan pattern and positive RSI divergence suggests that the index could be in the early stages of a bullish move. Within this context, stocks like Jubilant Foods Ltd and UPL Ltd stand out as potential beneficiaries of the upcoming market rally.
Disclaimer
Note: We have relied on data from http://www.definedgesecurities.com throughout this article. Only in cases where the data was unavailable have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.
Disclosure: The writer and his dependents do not hold the Stocks discussed in this article. However, clients of Definedge may or may not own these securities.