Is Nifty heading for a breakout with a potential target of 11,349?

The year gone by has left some bitter memories for bulls as they had to lick their wounds when Nifty resumed its ferocious down move for the second time in the year from the absolute highs of 11,760 registered in last August.

The index after registering a record high retest 10,000 levels for the second time where it appears to have registered a double bottom kind of formation on the charts.

But, the ensuing rally of the last two months from the lows of 10,005 registered on October 26 last year is equally frustrating as it got stuck up in a larger range with overlapping chart structure which is an indication of a corrective up move but not a fresh bull run.

However, from a ‘Neo Wave’ perspective, the said rally unfolded in seven legs with the similarity of the time frame between each leg which are market in alphabets with a – ‘g’ as shown on the chart.

This kind of similarity of time is found in a Diametric formation of a Neo Wave analytical technics, which develops with a contracting as well as an expanding structure and comprises seven legs with each leg consuming almost similar time frame as shown on the chart.

If this observation is true then the said diametric corrective structure might have completed at recent highs of 10,985 registered on December 19 last year.

But, once the diametric formation is over then the subsequent move is very fast and in the direction of the larger trend that is down. But, that is not the case with the current behaviour of Nifty50.

Hence, the said diametric structure can be a part of the bigger pullback rally which seems to be having more legs on the upside.

This diametric structure is getting separated by one more corrective structure, which is clearly looking like a contracting triangle from the highs of 10,985. This can be labelled as ‘X’(or B) wave to separate between two corrective structures, which should ideally pave the way for one more corrective structure on the upside once it gets culminated.

NIFTY Chart 11 Jan

If this contracting triangle is in place from the highs of 10,985 then there is a bright chance that this structure might have culminated at Friday’s low of 10,739 and should register a breakout in the next two sessions with a strong close above 10,870 levels signalling the beginning of short term uptrend.

In that case, a target close to 11,350 can not be ruled out going forward.

This outlook will get negated if Nifty slips below 10,626 levels.

Here is a list of top three trading ideas which could give 5-12 percent return in the next 1 month:

Mahindra & Mahindra: Buy| LTP: Rs 728| Target: Rs 790| Stop Loss: Rs 710| Return 8.5%

This counter appears to be in a multi-week consolidation mode and moving in a large range of 700–800 levels. Interestingly, after a recent cut from the highs of 810, this counter appears to be moving in a narrow range of 712-730 with the last six sessions hinting at a possible short term bottom.

In that case, if it starts rallying, ultimately it should test the upper end of the larger trading range placed around 800.

As the risk-reward ratios will be favourable, positional traders are advised to buy into this counter for a target of 790 and a stop below 710 on a closing basis.

Bosch: Buy| LTP: Rs 19514| Target: Rs 20500| Stop Loss: Rs 19,150| Return 5%

After the recent upmove from the lows of 18,300 – 20,000, this counter appears to be moving in an 800-point range between 20,000-19,200 range for almost last 17 sessions.

Hence, one can buy into this counter in anticipation of a breakout above 20,000. In that scenario, the initial target can be placed at 20,500 levels. A stop suggested for the trade is a close below 19,150.

Welspun Corp: Buy| LTP: Rs 137| Target: Rs 154| Stop Loss: Rs 129| Return 12%

This counter appears to have posted a short-term bottom around Rs 130 levels as it is moving in a narrow range for the last 6 sessions after retracing 62 percent of its rally from the lows of 116–164.

Hence, on resuming the upward move from the said base it can eventually test its interim top of 160 levels. Hence, positional trades should buy into this counter for a target of 154 with a stop below 129 on a closing basis.