The Nifty Midcap 150 and Nifty Smallcap 250 indices rose by around 28% each in the first eight months of 2024. These indices have outperformed the benchmark index, Nifty50, which rose by 16% during the same period.
This significant outperformance is due in part to frequent sector rotations, where different sectors have taken turns leading the market each month.
Among them, the diamond and jewellery segment has gained attention, although it lacks a specific sectoral index on the NSE or BSE.
To fill this gap, we have created the Definedge EQW Diamond & Jewellery Index, an equal-weighted index comprising 12 stocks from the diamond and jewellery sector. This index offers a more focused view of the sector’s performance, providing insight into its trends and possible future movements.
EQW Diamond and Jewelry Index Defined
The Equally Defined Weighted (EQW) Diamonds and Jewelry Index is designed to give equal weight to each of the 12 component stocks, regardless of their market capitalization. This approach allows us to track overall sector performance without the bias that can result from a few large-cap stocks dominating the index.
Before we look at specific stocks, let’s examine the technical setup of the index to understand where the market might be headed.
EQW Diamond and Jewelry Index Defined
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On the daily 3% X 3 Point & Figure (P&F) chart, the Definedge EQW Diamond & Jewellery Index has historically broken out of its resistance zones, which are now acting as strong support levels.
What is a P&F chart?
A point and figure chart is a charting method that uses X’s and O’s. X’s denote bullish moves, while O’s denote bearish moves. Unlike traditional time-based charts, point and figure charts focus solely on price changes and are considered “silent.” They filter out minor price fluctuations, highlighting significant trends and reversals. The lack of time constraints gives a clearer picture of supply and demand dynamics, helping analysts make more informed decisions.
On the P&F chart of the Definedge EQW Diamond and Jewelry Index, every break of a resistance level has been retested – a crucial feature of technical analysis. A successful retest often confirms the validity of a breakout, providing a promising entry point due to the favorable risk-reward ratio.
The most recent breakout was followed by a 45-degree trendline, indicating a strong uptrend. This was further confirmed by the Anchor Column Tracking (AFT), marked by a blue line on the chart. The AFT indicates the resumption of bullish momentum, suggesting that the index has more room to rise.
As both short- and long-term chart patterns point towards a continued uptrend, it is worth examining some key stocks within the index that could lead this advance.
1. Titan Co. Ltd.
Titan, one of India’s leading jewellery brands, has a significant presence in the market for watches, eyewear and other lifestyle products. Its jewellery brand Tanishq has carved a niche for itself among Indian consumers. Titan’s robust business model, strong brand loyalty and extensive retail network make it a key player in the jewellery sector.
When we talk about Titan, how can we forget the legend of Late Shri Rakesh Jhunjhunwala, whose success story is well known in the stock market?
Titan, candlestick chart
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On the weekly chart, Titan’s stock price has consistently posted higher highs and higher lows, a classic bullish pattern according to Dow Theory. This pattern suggests that demand for the stock outstrips supply, causing prices to rise over time.
Since the reversal of the pandemic-induced decline, Titan has found strong support at the 100-week exponential moving average (WEMA) channel, which is created using the highs and lows of the 100-week EMA.
The stock price found support at this channel in 2021 and 2022, and multiple instances in 2024 indicate that bulls have maintained control.
Additionally, the breakout of a diamond pattern on the daily chart adds further conviction to the bullish thesis. The combination of these technical indicators suggests that Titan is well positioned for a potential continued upside.
2. Tribhovandas Bhimji Zaveri Ltd (TBZ)
Tribhovandas Bhimji Zaveri is a well-known brand in India with a legacy of over 150 years. Known for its high-quality craftsmanship and exquisite jewellery designs, TBZ has established a strong brand presence across India.
What stands out about TBZ is the recent increase in monthly trading volumes, which have been the highest for two consecutive months, in July and August. This increase in volume usually precedes significant price movements and can be a strong indicator of institutional interest.
To better understand TBZ’s price action, we can look at Wyckoff’s theory. This advanced method of technical analysis identifies the accumulation and distribution phases of a stock. The Wyckoff method focuses on the psychology of market participants, identifying how smart money operates within the market.
TBZ, bar chart
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The monthly chart of TBZ, dating back to 2012, shows a clear Wyckoff accumulation pattern.
After reaching an all-time high of ₹In December 2012, when the stock reached the 252 level, the stock entered a preliminary selling phase, followed by a selling climax that marked the end of the downtrend. This phase was characterized by high selling volume, suggesting intense selling pressure.
Following the climax of the selling, TBZ experienced an automatic rally, which often served as a bull trap in Wyckoff’s analysis. The subsequent decline, marked by lower volumes, took the stock to its 52-week low. However, the lack of volume during this decline suggested that selling pressure was easing, setting the stage for a reversal.
Next came the spring or restructuring phase, during which stocks briefly broke their lows before reversing on higher volumes, signaling sellers’ exhaustion. This marked the beginning of the accumulation phase, during which smart money quietly piles into stocks in anticipation of a future uptrend.
Since the pandemic, TBZ has seen a significant increase in volume (red arrow marked on the chart), particularly in December 2020 and January 2021. This marks the beginning of Phase C in the Wyckoff Accumulation Model. This phase is often where the Last Point of Support (LPS) forms, creating a higher low and signaling a bullish reversal.
As TBZ surpasses its multi-year high of ₹135, the stock is now entering phase D, where the price increase phase begins. This phase is characterized by rising prices and higher volumes, suggesting that the base is firmly established and that further growth is possible.
3. Kalyan Jewellers India Ltd.
Kalyan Jewellers is another prominent name in the Indian jewellery market. With a wide network of showrooms across India and West Asia, Kalyan has built a strong brand that is renowned for its wide range of jewellery offerings and deep-rooted trust among customers.
Kalyan Jewellers Price & Sales Chart
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Kalyan Jewellers’ Point and Figure (P&F) chart provides a unique perspective on its price trends.
Kalyan Jewellers has been in an uptrend on the daily P&F chart of 1% X 3, forming higher lows as the stock was trading in double digits.
The D-Smart Line, a proprietary indicator used on the P&F chart, adds another layer of analysis. This indicator consists of two lines: the marching line, which constantly adjusts its pace based on market conditions, and the racing line, which reacts more aggressively to market trends. Together, these lines create a cloud that helps the analyst visualize the stock’s trend.
The stock price has recently formed a base on the moving line, indicating strong support. The subsequent breakout of the consolidation zone, marked by an anchor column follow-through (AFT), indicates a resumption of bullish momentum. The bullish cloud created by the D-Smart line further supports the view that the bulls are in control of the trend.
In summary, the Definedge EQW Diamond & Jewellery Index, along with the individual results of Titan, TBZ and Kalyan Jewellers, suggest that the Indian diamond and jewellery sector is poised for a strong uptrend. The technical configurations of these stocks show bullish patterns, each with unique characteristics that support future trends.
In conclusion, stock prices can fluctuate for a variety of reasons. The ones mentioned above are just one aspect of what determines the movement of stock prices. Keep track of how these trends develop and note which factors are the most important. This should help you become a more effective trader.
Note:The purpose of this article is solely to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, we strongly recommend that you consult with your advisor. This article is strictly for educational purposes.
Brijesh Bhatia has over 18 years of experience in Indian financial markets as a trader and technical analyst. He has worked with firms such as UTI, Asit C Mehta and Edelweiss Securities. He is currently an analyst at Definedge.
Disclosure: The author or his/her dependents may or may not own the stocks/commodities/cryptocurrencies/any other assets discussed here.
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