The roughly 15% rally in the Nifty Pharma Index that's occurred over the last four weeks has a lot of people asking "was that the bottom?". In an attempt to answer that question I'll be looking not only at the index itself, but at its 10 components as well.

Before we get into that though, I think it's important to understand how this index is constructed. Despite there being 35 pharmaceutical stocks in the Nifty 500, the Nifty Pharma Index only has ten stocks in it that make up roughly 80% of the industry's market capitalization. Situations like this are why we use equal-weighted indexes to get a better idea of what stocks in this industry are doing, as only looking at the cap-weighted index which is dominated by large-caps can mask the positive or negative relative performance of its mid and small-cap companies.

But today we're talking about the cap-weighted index performance, so let's get right into it.

This week's chart of the week is highlighting the 4+ year highs that Copper made today, however, the rest of the base metal space should not be overlooked as it continues to show relative strength versus the rest of the commodity complex. With that being said, this post is a quick update on our risk management levels and price targets for the rest of the space.

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It’s very easy to get caught up in the day to day noise of the market, especially if you’re allowing toxic media content into your life. It’s virtually impossible for us to completely ignore it all, although I do try my best. So, at the very least, we want to be aware of what type of content we’re consuming and the conflicts of interest that are driving it. But another, and much easier way to avoid getting lost is simply by taking a step back. Monthly charts allow us to see the forest through the trees and is one of the most valuable parts of my entire process.

Even if you’re a day trader or short-term swing trader, I think it’s a huge advantage to understand the direction of the underlying trends. For me, who specifically looks out weeks and months, trying to make money this quarter, my monthly candlestick chart review is essential. I can’t begin to tell you how much this has helped me avoid blindly calling tops or bottom fishing in never ending downtrends. It most certainly helps us err in the direction of the underlying trends which, of course, increases our probabilities of success.

In this week's India Chart of the Week I discuss why the equal-weighted Nifty Auto index is suggesting we want to be looking to the sector for opportunities on the long side, despite the overall lack of direction in the cap-weighted index over the last few months. To avoid being redundant I'll refer you to that post for the full explanation of this thesis and get right into the Auto stocks we want to be buying.

Click on chart to enlarge view.

As Technicians we like to use the phrase “the bigger the base, the higher in space” when talking about breakouts from consolidations. Long periods of indecisive price action build a lot of potential energy that is then released once a stock breaks out of its range. This applies to any asset class on any timeframe because the psychology behind the pattern is exactly the same. The weight of the evidence continues to suggest we want to be long equities, so I’ve taken a look through the Nifty Smallcap 250 and identified some of the best bases that are either breaking out or look poised to over the intermediate-term.

As Technicians we like to use the phrase "the bigger the base, the higher in space" when talking about breakouts from consolidations. Long periods of indecisive price action build a lot of potential energy that is then released once a stock breaks out of its range. This applies to any asset class on any timeframe because the psychology behind the pattern is exactly the same. The weight of the evidence continues to suggest we want to be long equities, so I've taken a look through the Nifty Midcap 150 and identified some of the best bases that are either breaking out or look poised to over the intermediate-term.

Every month I host a conference call for All Star Charts India Premium Members where we discuss ongoing themes throughout the India Share Market. We take a look at all of the NSE Indexes and Sectors as well as some of our own custom indexes. At Allstarcharts we have become known around the world for the top/down approach to stocks. After we analyze each of the indexes and sectors and have identified where the strength and weakness lies, then we break it down to individual stock opportunities. By having momentum, relative strength and market trend in our favor, the probabilities of success increase dramatically.

I think our messaging has been clear that we want to be buying equities, and buying those showing relative strength. The Nifty Financial Services index and the Nifty Bank index are sitting just off all-time highs relative to the Nifty 500, so I've done a deep dive into them to highlight the best large, mid, and small cap names on the long side. I've also included some names from the Nifty Public Sector (PSU) Bank index, but would note that it's hitting 2-year lows relative to the Nifty 500 and therefore has a much smaller representation on this list despite being part of the Financial Services sector as a whole. 

In my last post I outlined the evidence from India and around the globe that suggests equities as an asset class are headed higher. I pointed out the failed head and shoulders topping patterns in the Nifty 50 and other indices that should fuel the move higher. With that being said, I wanted to outline the Nifty 50 stocks where I believe the risk is defined best and the reward/risk is still favorable.