NIFTY Index Chart Analysis

After a volatile week, Nifty formed an inside bar last week as it traded within the previous week’s range. It traded in the range of 489 points, formed a long upper shadow candle and resembled a shooting star candlestick pattern. Even after two successive weeks’ efforts to close above the 20 week average, it failed. At the same time, it formed a big bearish engulfing candle on a daily chart as it experienced a flash crash in the last 90 minutes of trading on Friday. With this 300 points’ decline, Nifty closed below the 50 DMA and 200 DMA.

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For the previous 10 trading sessions the index has just oscillated around these two key moving averages. Up to 50 per cent of Nifty stocks are trading below the 200 DMA. This shows weakness in the market trend. The outcomes are therefore not good for market direction. However, the only solace is that it closed above the weekly opening. The last eight days’ price action is nothing but a counter-trend consolidation – the pennant pattern.

Interestingly, after taking support at 50 per cent of the previous upswing, the current consolidation failed to cross 50 per cent of the downswing. In any case, a close below the level of 17,000 would lead to a resumption of the downswing again. The target of this breakdown is at a minimum of 16,124 and sooner or later it may test the 15,327-15,100 zone of support, which is nothing but the broadening triangle’s support line. Even the previous two swings Fibonacci extension target is almost at the same levels.

Nifty failed to fill the gap of April 18 completely, which has resulted in a ‘death cross’ of the 50 DMA decline below the 200 DMA, which is a long-term bearish sign. A failure to close above the gap-down actions was a sign that the bears are in full control and will continue to maintain their grip until the bulls can close above the last gap-down area. The benchmark index failed to form another minor high. It formed three higher lows and two lower minor highs, which is a minor downtrend and an intermediate downtrend in a long-term downward channel.

The classical mode of technical analysis describes this setup as nothing but a confirmed long-term downtrend. The long-term downward channel already has two highs and two lower lows. Currently, Nifty has seven distribution day counts along with its decline below the 50 DMA, which is also a downtrend character. In fact, the benchmark index is at a very crucial juncture as it has failed to sustain above the 200 DMA and added distribution days. As it is still in the pennant formation, there is no decisive directional trade and Nifty is in a ‘no trade’ zone. As mentioned above, the 17,000- 17,457 zone needs to break for a directional trade.

For the last weeks, the weekly MACD line has been struggling to move above the signal line. With Friday’s sharp decline, the histogram shows that bearish momentum has increased. The daily and weekly RSI is below the 50 zone and is not showing any kind of divergences as of now. Nifty also closed below the Anchored VWAP, anchored at the previous swing low. The analysis of relative rotation graphs (RRG) shows that a majority of sectoral indices are losing their relative performance.

Leading sector indices such as Nifty Bank, Services, IT, Auto, Realty, Media and Financial Services are inside the weakening quadrant. The FMCG sector is gaining momentum in the improving quadrant. This shows that currently the market is missing participation from the leading sectors. As mentioned in our last column, the Dollar index (DXY) has moved above the 103 zone, which is above the prior two major swing highs. After June 2017, it reached above the 103 levels. This is a big negative for the equity markets. The US market closed negatively for the fifth consecutive week and at the prior swing low.

If the Dow Jones index closes below 32,578 from its current level of 32,977), the result will be big breakdown. During mid next week, the Federal Reserve will be meeting to end the easing policies and raise the interest rate. A 50 or more basis point could certainly dampen the market sentiment. It is better to stay with the trend and avoid long positions as long as the benchmark trades below 17,457. Focus on those companies that are declaring good growth in earnings.

STOCK RECOMMENDATIONS

SHANTHI GEARS LTD ................ BUY ........... CMP ₹ 235.45

BSE Code : 522034
Target 1 .... ₹ 260
Target 2 ..... ₹ 283
Stoploss....₹ 212 (CLS)

A subsidiary of Tube Investments of India, the company is a pioneer in gear manufacturing and ranks amongst India’s top gear manufacturers today. It offers a comprehensive range of products and services with cutting-edge gear solutions for a wide range of applications and specialised gear reconditioning services. The company’s presence in the customised product domain is strong and it occupies a dominant position in the market. The stock has broken out of the 32-week cup and handle pattern with above average volume and recorded the second-highest volume in a week in its history. It has broken out of a good base with a massive up move in a scenario resembling a bear market. It closed at a new lifetime high and above the prior pivot. The stock is comfortably placed above the key moving averages. It is 23 per cent above the 50 DMA and 38 per cent above the 200 DMA. The MACD is above the zero line and the histogram suggests strong bullish momentum. The RSI (70.53) is in a strong bullish zone and no divergences are visible. The Elder impulse system has formed a strong bullish bar and it closed above the Anchored VWAP resistance. The KST and TSI indicators show a solid bullish setup. As it sharply moves higher, a minor retracement is possible, which is likely to present a new buying opportunity. Buy this stock with a stop loss of 212. The short-term price can be ₹260 while it can test the level of ₹283 on the upper side.

INDIAN HOTELS CO. LTD. .................. BUY ........................ CMP ₹256.25

BSE Code : 500850
Target 1 ..... ₹284
Target 2 .... ₹305
Stoploss....₹236 (CLS)

IHCL and its subsidiaries bring together a group of brands and businesses that offer a fusion of Indian hospitality and world-class service. The portfolio includes Taj, SeleQtions, Vivanta and Ginger. IHCL has a portfolio of 196 hotels, including 40 under development globally across four continents, 12 countries and in over 80 locations. After breaking out of the 22-week consolidation pattern four weeks ago, the stock was retested at the breakout point during last week. It registered a new lifetime high close on Friday. Currently the stock is trading 11 per cent above the prior pivot. It took support at a 10-week moving average and is above the key moving averages. The stock is 15 per cent above the 50 DMA and 35 per cent above the 200 DMA. All the short-term and long-term averages are in an uptrend. The RSI is in a strong bullish zone and the MACD shows bullish momentum. The volumes show an increased demand for the stock. The ADX (23.36) is rising and displays solid strength in the trend. The +DMI is above the -DMI and ADX. The Elder impulse system has formed a strong bullish bar. It has strong relative price strength (RS) of 78 and a buyer demand of A. Institutional investors have increased their stake in the company by 18.67 per cent in the last quarter and 264 institutions have so far invested in the company. Buy this stock with a stop loss at ₹236. The short-term target is ₹284 while the medium-term target is ₹305.

*LEGEND: • EMA - Exponential Moving Average.• MACD - Moving Average Convergence Divergence • RMI - Relative Momentum Index• ROC - Rate of Change •RSI - Relative Strength Index

Disclaimer : Above recommendations are based on various technical parameters and any fundamental input has not been considered for the recommendations. Follow strict stop loss for the recommendation.

(Closing price as of Apr 29, 2022)

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