Is the market sell-off a Diwali offer you have been waiting for?

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During Diwali, shopping is popular due to numerous offers, and the recent market correction can be viewed as a “Diwali offer”.

Nifty: The bull opportunity or is it over?

It’s the power of a bullish trend when the Nifty50 dipped below its 200-day moving average (DMA) in March 2023 and yet the bulls grabbed the opportunity at the long-term support zone offering. The markets rallied from 17,800 to 26,277—a gain of 47% in just 18 months. This rally included periods of consolidation as well as a few sharp corrections. Currently, the Nifty has not breached its medium-term rising trendline, signalling that the bulls are still in the game.

Additionally, the 14-period relative strength index (RSI) is in oversold territory, indicating a potential reversal that could offer bulls an opportunity.

Nifty: The Fibonacci at play

Historically, the rally in May 2023 experienced multiple price and time corrections. In terms of price retracements, previous corrections witnessed support within the 38.2-50% Fibonacci retracement zone from their respective swings. Similarly, prices are likely to find support within that range this time.

With the RSI entering the oversold zone and the index finding its lost ground within the Fibonacci support, the range of 23,700-24,000 may attract festive buyers in the market.

Nifty500: Buy or bye?

The Nifty500 daily price chart is similar to that of the Nifty50, as the price has maintained its position above a long-term rising trendline and the 144-period Fibonacci Simple Moving Average (SMA) since May 2023. Additionally, the price faced resistance in the 22,000-22,200 range previously; this level now acts as a support zone. Furthermore, the 14-period RSI shows signs of recovery, having taken support and reversed from oversold territory.

Overall market breadth

Considering the data above points, we are approaching a potential short-term bottom. Therefore, investors and traders could potentially start accumulating stocks during this auspicious festival, effectively gifting themselves and their loved ones with quality investment ideas.

My stock selection process:

We use the 200 DMA as a key indicator, and the index above the 200 DMA is a sign of a bullish trend. Additionally, the 14-period RSI assists in identifying not only the trend but also its momentum. Therefore, we are selecting stocks with both monthly and weekly RSI readings above 60 while looking for daily RSI to reverse from the 40 level.

Deepak Fertilizer

Deepak Fertilizers was an underperformer in 2023, with the stock price correcting from 1,062 to 452, resulting in a negative return of approximately 57.63%. The table turned from April 2024, breaking from multiple bullish patterns and successfully crossing above its 200 DMA. At the current juncture, the price is again exhibiting a fresh breakout from its consolidation pattern, indicating the potential for substantial returns from the current market price.

Poly Medicure

In contrast, Poly Medicure has outperformed since 2024. Recently, the stock price peaked near 2,600, undergoing a correction of approximately 17% in 17 days and made a low near the 2,200 level. However, in the subsequent 17 days, the price recovered from its low of 2,200 and reached its previous high of around 2,600.

Given the current setup, the price is breaking out with strong volume, and momentum indicators are also in the bullish zone. Therefore, we anticipate that the price could continue to rise, potentially yielding significant returns in the near-term.

For more such analysis, read Profit Pulse.

Conclusion

As discussed regarding the recent setup on the Nifty daily price chart and the Nifty 500 daily price chart, we are nearing a potential short-term bottom at approximately 23,700 and 22,000, respectively. This provides an opportunity to begin accumulating high-quality stocks based on our outlined technical setups.

We anticipate that Deepak Fertilizers and Poly Medicure will outperform in the near term. As part of the celebration, investors may consider these stocks as potential Diwali offers.

Note: 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. 

As per Sebi guidelines, the writer and his dependents may or may not hold the stocks/commodities/cryptos/any other assets discussed here. However, clients of Jainam Broking Limited may or may not own these securities.

Kiran Jani has over 15 years of experience as a trader and technical analyst in India’s financial markets. He is a well-known face on the business channels as market experts and has worked with Asit C. Mehta, Kotak Commodities, and Axis Securities. Presently, he is head of the technical and derivative research desk at Jainam Broking Ltd.

Disclosure: The writer and his dependents do not hold the stocks discussed here. However, clients of Jainam Broking Ltd may or may not own these securities.