Will Nifty follow seasonality trend ahead of Diwali? Anand James does the chart reading

NEW DELHI: A Bollinger band is indicating that Nifty may rally in the Diwali week but two Doji candles formed in the last days do not inspire confidence towards an outright uptrend early next week, says Anand James, Chief Market Strategist at Geojit Financial Services.

Edited excerpts from a chat:

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In the last 9 out of 10 instances, Nifty has given positive returns in the period between Navratri and Muhurat trading. Do you see history repeating this time as well? What would be your targets for the week?
Prospects of the same are supported by a narrowing Bollinger band and the fact that we are coming off a low base after a steep and sustained downtrend from a record peak. FIIs’ shorts in index futures being at an extreme position also support the prospects of a push higher.

But even as we continue to look for 19,420 as the immediate target, the two dojis in the last two days do not inspire confidence towards an outright uptrend early next week. The inability to float above 19,230 initially, could point towards this but dips towards 19,180 or slightly below could augur well towards resuming upsides.

Mid and smallcap bounced back and outperformed. Do you think that the recent correction has made the rally stronger in the broader market?

While Nifty has just about managed to get back near the nearest reaction high, it is still below the 14-day SMA. In contrast, both mid and small caps have raced higher with the former now exactly at the 62% retracement from the peak, while the latter has pierced even that is closing in on the record peak, which is just about 1.5% away. In other words, risk appetite has vastly improved and that is showing in the mid and small caps more than what the Nifty 50 stocks have allowed to reveal.

So yes, one could say that the recent correction may have helped take out the froth and exhaustion that may have crept in the previous months.Give us your top ideas for the week before Diwali
Blue Star (CMP: 971)
View: Buy
Entry range: 972 – 964
Targets: 1,020-1,050
Stop Loss: 945

The stock has been moving within a Rs 100 range since September and has broken it on the higher side hinting at more upside in the coming days. Also, the MACD has broken above the signal line in the daily time frame, supporting our expectation of positivity. We expect the stock to move towards 1,020 and 1,050 in the coming weeks. All longs may be protected with a stop loss placed below 945.

Orient Cement (CMP: 205)
View: Buy
Entry range: 205 – 202
Targets: 216 – 230S
Stop Loss: 194.5

An Inverted Head and Shoulders in the weekly time frame is almost completed with a breakout expected soon. A similar pattern is also visible in monthly charts with MACD holding above the signal line. We expect the stock to move towards 216 and 230 in the coming weeks. All longs may be protected with a stop loss placed below 194.5.

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