Nifty Energy Index - Adding Fuel to the Fire

The Nifty Energy index has remained silent and showed a muted performance in November 2022 with marginal gains of 0.4%.

This compares with gains of over 3% for the benchmark Nifty.

Recently, bullish momentum can be seen in the index. If we look at individual stocks, Reliance Industries is leading the way.

With a weightage of 31% in the Nifty Energy Index and 10% in the Nifty, the stock is leading the way to new highs.

Nifty Energy Index Constituents

Constituents	Weights
Reliance Industries	31.30%
NTPC	13.29%
Power Grid	11.23%
ONGC	10.97%
BPCL	9.89%
IOC	8.00%
Gail	5.61%
HindPetro	4.95%
Tata Power	2.45%
Adani Transmission	2.29%

Source: Equitymaster

As energy stocks are gaining bullish momentum and leading the market higher. Which stocks can support Reliance Industries and what is the chart of the Nifty Energy Index indicating?

Before I head to the chart of the Nifty Energy index, I would like to highlight the ratio chart of Nifty Energy Index / Nifty 50 to gauge the outperformance and underperformance of the energy index over the Nifty.

Nifty Energy Index / Nifty50 Weekly Ratio Chart

 

The ratio chart is a tool to identify the outperformance and underperformance of one instrument over other.

In the chart above, we are measuring the performance of the Energy Index over the Nifty 50.

The Energy Index and Nifty 50 swung up and down during 2017-2022 before breaking out on the chart.

The breakout and the ratio heading northward, means the energy index is outperforming the Nifty 50.

Since its breakout in February 2022, the ratio chart between February and May was led by Reliance Industries.

The breakout has been retested back in November 2022 and Reliance Industries awakened with bullish momentum.

The ratio chart indicates it's the best time to invest in energy stocks.

Nifty Energy Index / Nifty50 Weekly Ratio Chart

 

As the ratio chart is indicating the bullish tone for the energy index, so is the Fibonacci Time Cycle theory.

Since December 2021, the index is trending in the symmetrical triangle pattern on the daily chart (marked red).

As per the Fibonacci Time Cycle theory, the momentum in the index begins on 233 bars or trading days since the start of the triangle.

The beginning of the trend on the Fibonacci Time Cycle Day highlights the index is headed for a bullish breakout and eventually, a new all-time high. The current all-time high is 29,304 and the index is trading at around 26,800.

Investors and traders should keep energy stocks on their radar for the next 3-6 months.

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...