NIFTY Index Chart Analysis

On Account of the intensified selling pressure in the broader market, the benchmark indices declined to near their previous swing low. The current downfall was one of the sharpest as it declined more in lesser time. The Nifty closed at the lowest level after July 30, 2021. The fall is severe and steeper than earlier swings. The first downswing in the current downtrend has taken 42 sessions for an 11.9 per cent fall. The second swing took about 33 sessions for 14.5 per cent. But, the current downswing is 13.9 per cent which took just 15 trading sessions.

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Interestingly, the upswings are short-lived and the time consumed is almost half of the downswing time. Recently, the Nifty formed Doji near the previous swing low and bounced sharply. Currently, it is at a crucial juncture. During June-July 2021, the index consolidated in this range for a long-time. The Nifty moved far away from the 20 DMA (6.4 per cent). The 20 DMA works like a magnet in the market as it always wants to be closer to the price. Historically, the Nifty rarely moves more than 6.5 per cent from the 20 DMA.

This is the reason that after three parallel bottoms the Nifty bounced sharply by 2.63 per cent and formed one of the most bullish candles in recent times. Now the distance has diminished just to 1.75 per cent. The 20 DMA is currently placed at 16,642, which is at the gap area resistance. There are several gaps in the current downtrend. The immediate challenge is that the index has to close above the May 6, 2022 gap area. Otherwise, once again, the market will lead to more gap downs in the near term. As the southern Doji got the confirmation of the bullish reversal, we are likely to see a positive bias for the next three-four trading sessions.

These positive closings have to test and fill the gap. The downtrend retracement is generally limited to 38-50 per cent. The 38.2 per cent retracement level of the current downswing is exactly at the gap resistance of 16,647. For the current retracement, the 16,647-824 zone is likely to act as massive resistance. RSI, the leading indicator, is sharply surging from the oversold condition. This bounce has to move above the 50-60 zones to get bullish strength. Any decline from 45-50 zones would result in a resumption of the downtrend.

The next leg of the downtrend would be sharper, like a falling knife. The bear market pullbacks are short-lived. Before making a new swing low, the recovery was led by short-covering and the indices’ efforts to come out of the oversold condition. The MACD histogram shows a decline in bearish momentum. But the MACD line is still far away from the zero line. The ADX (26.09) shows bear strength as the negative directional indicator -DMI is above the +DMI; the ADX line has been flattened for the last two days.

The decline in broader market indices is a big worry now. The advance-decline ratio has been negative for the last few weeks. The small-caps and Mid-Caps are declining faster than the benchmark and have lost relative momentum compared to the Nifty 500. About 75 per cent of the stocks in Nifty 50 are trading below the 200 and 50 DMAs. This shows weakness in the overall market. As across the sectors, market-caps are losing relative strength; the market needs broader buying support. Interestingly, the Nifty has not made a fresh swing low but many index stocks have already declined below the March 8, 2022 lows. Many mid-cap and small-cap stocks declined more than 50 per cent from their recent highs. The Nifty has corrected 15 per cent from the October 2021 lifetime high and completed the Category 1 correction (11-13 per cent).

Historically, the market experiences the Category 2 correction (25-30 per cent) every two years. The March 2020 correction is already completed for two years. The current downtrend can be classified as Category 2 correction, and expect a decline of 25 per cent from the October 2021 high, which is near the 14,000 levels. The pullbacks are common in this market condition. Wait for the behaviour around the 16,600 zone of resistance. The next leg of the down move will be sharper and it can test the 15,290 and 15,150 levels. It is prudent to stay with stocks with good relative strength. Adopt a cautiously positive approach for a week with strict risk management. The market will enter into a decisive trending move in the next two weeks.

STOCK RECOMMENDATIONS

INSECTICIDES (INDIA) LTD. ........... BUY ....... CMP ₹753.30

BSE Code : 532851
Target 1 : ₹ 847
Target 2 : ₹ 900
Stoploss : ₹ 688 (CLS)

 Insecticides India Ltd. is one of India’s leading manufacturers of agrochemicals. It provides a range of products for crop protection requirements to farmers. It also owns the prestigious ‘Tractor’ brand which has gained popularity in the farming community. The company has state-of-the-art manufacturing facilities located at Chopanki (Rajasthan), Samba and Udhampur (Jammu and Kashmir) and Dahej (Gujarat). Technically, the stock has been consolidating for the last 40 weeks in a cup and handle pattern. For the stated period, the handle has been formed in a very tight range. Currently, it is trading very near to the previous high and 4 per cent from the prior pivot level. It is comfortably placed above its key moving averages, around 8 per cent and 5 per cent from its 50 DMA and 200 DMA. The 20 DMA is acting as key support now and the narrowed Bollinger bands indicate an impulsive move on the upside. For the last one week, the volumes recorded were above average. The daily MACD is about to give a buy signal. The weekly and daily RSI are above 60 and in a strong bullish zone. Its relative price strength is rising above the prior high and indicating outperformance of the stock compared to the broader market. The Elder impulse system has formed a strong bullish bar. The TSI indicator has given a fresh buy signal. It is also trading above the Anchored VWAP. Buy this stock above ₹ 758 with a stop loss of ₹ 688. The short-term target is at the previous high of ₹ 847. Continue with a trailing stop loss for a target of ₹ 900

SHARDA CROPCHEM LTD ......... BUY .............. CMP ₹ 708.10

BSE Code : 538666
Target 1 : ₹ 780
Target 2 : ₹ 818
Stoploss : ₹ 670 (CLS)

Sharda Cropchem is a crop protection chemical company. It markets and distributes a wide range of formulations and active ingredients globally. It also procures and supplies belts, general chemicals, dyes and dye intermediates. Technically, the stock has recently broken out of an eight-week base and has retested the breakout level. Currently, the stock is trading at a closing high. It formed a downward channel that tested the resistance line. The 20 DMA entered an uptrend and the 50 DMA has already been in an uptrend. The stock is trading around 12 per cent and 59 per cent from 50 DMA and 200 DMA. The MACD has given a fresh buy signal. The RSI is also in a strong bullish zone. For the last two days, the volumes recorded were above average. The +DMI is above the -DMI. The true strength indicator has given a fresh buy signal. The Elder impulse system has also formed three consecutive bullish bars. It is also trading above the Anchored VWAP. The stock meets all the CANSLIM characteristics. It has EPS rank of 86, which is a good score indicating consistency in earnings. The RS rating of 87, which is good, indicates outperformance as compared to other stocks. The buyer demand is at A- which is evident from the recent demand for the stock. Its group rank of 35 indicates that it belongs to a strong industry group. The master score of B is close to being the best. The stock is currently trading in a buying zone. Buy this stock with a stop loss of ₹ 670 on a closing basis. The short-term target is placed at ₹ 780 followed by ₹ 818.

(Closing price as of May 17, 2022)

*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.

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