Over the past month, we have witnessed a significant correction in Nifty50, marking the first double-digit correction in the last four years. During this period, many mid- and small-cap stocks have seen sharp declines of over 50%, which, although common during corrections, is concerning when it affects frontline stocks.
Greed turns to fear, and as Warren Buffet says, “Be greedy when others are fearful…” The current reversal saw frontline stocks across multiple sectors decline by more than 20%.
What does the Nifty chart indicate?
The November reversal from 23,300 to close above 24,000 indicates that Nifty50 has established a structural bottom near the 23,300 level, followed by a bounce back above 24,400. The daily price chart shows the index has broken out of its falling channel, with a significant gap-up opening. More convincingly, the index filled that gap and experienced a strong pullback, which continued with buying activity on Monday, 2 December, post-November F&O expiry.
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As we approach this potential recovery phase, readers can take two distinct approaches when selecting stocks:
1. Stocks that have corrected significantly—If the overall market recovers, these may offer opportunities for a rebound.
2. Stocks that have shown strength during the correction are likely to perform well if the market continues its upward momentum.
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Since the start of October 2024, Nifty50 has corrected by over 6%, with Reliance Industries standing out as one of the worst performers, down by 12%. Conversely, HDFC Bank has shown resilience, delivering a positive return and trading at an all-time high. It seems like the monarchy rule can begin again on D-Street.
Here are our two monarchy rulers that can lead the Nifty50 higher.
1. Reliance
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Reliance has experienced a significant 24% correction over the past 19 weeks. Looking at the weekly chart, we can observe that such corrections in the 20-24% range have occurred multiple times before.
Technical analysis is the study of the past to predict the future, and as we say –history repeats itself. Historically, these corrections on Reliance have been followed by strong rebounds, offering the potential for substantial returns.
Currently, we are witnessing an initial bullish signal on the weekly chart: a hammer candlestick pattern, which is typically a sign of a reversal. Moreover, we are seeing follow-up buying, with prices closing above the hammer candle’s high, further supporting the potential for a trend reversal.
But the key question is – Will history repeat in Reliance this time?
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Here’s why we think it’s possible – Reliance has recently broken out of a falling channel, and the 14-period RSI (relative strength index) is turning northwards from an oversold zone.
Additionally, multiple bullish divergences have formed, all pointing toward a potential reversal. Given the current chart setup, this appears to be a relatively low-risk opportunity for readers. Keeping the risk in mind, the chart setup may be negated if this king breaks below the ₹1,200 level.
2. HDFC Bank
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Emperor Ashoka was always calm and composed. HDFC Bank has played that role in the current market fall, and now, when the market shows signs of reversal, the King awakens to hit new highs. While Bank Nifty and other PSU banks have been performing well, HDFC Bank has remained in a consolidation phase. This is not the first time we have seen this scenario; historically, each period of consolidation has eventually been followed by a strong breakout with impressive returns.
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Looking at the daily price chart, the stock has broken out of an ascending triangle pattern, which is a bullish continuation formation. This suggests that the previous upward movement may resume, with the stock price potentially breaking out into a new range on the upside. Additionally, the 14-period RSI is in a bullish zone, reinforcing the idea that the stock is potentially poised for a move.
If HDFC Bank sustains above the ₹1,800 level, the monarchy of the second king can be expected on the D-Street.
Also Read: Three reasons HDFC Bank may turn around sooner than you think
Is Nifty50 set for a powerful rally led by Reliance and HDFC Bank?
The Nifty50 chart is showing early signs of a potential reversal, and when we connect the dots with large-cap stocks like Reliance and HDFC Bank, the outlook becomes even more intriguing. The Reliance chart displays a reversal chart pattern, while HDFC Bank forms a bullish continuation pattern. Both stocks appear to be setting up for a potentially significant move. If they maintain their momentum, these two heavyweights(kings) could likely drive the next upswing in Nifty50.
For more such analysis, read Profit Pulse.
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 ofJainam 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 AxisSecurities. Presently, he is Head of the Technical and Derivative Research Desk at Jainam Broking Limited.
Disclosure: The writer and his dependents do not hold the stocks discussed here. However, clients of Jainam Broking Limited may or may not own these securities.
Also Read: Patience vs Payoff: What HDFC Bank’s investors can learn from Sachin Tendulkar
