NIFTY Index Chart Analysis

The Nifty made a new low after March 8. With this, it also registered an 11-month low. The index failed to move above the 38.2 per cent retracement level of the prior swing.It has also failed to move above the 50 DMA. With the last two days of fall, all the moving averages such as 20, 50, and 200 DMAs are in a clear downtrend. And it also faced resistance from previous supports i.e. change of polarity. Declining 6.75 per cent from the June 3 high in just eight days shows the overall weakness in the market. During this period, the index also failed to move above the prior day’s high. [EasyDNNnews:PaidContentStart]

Nifty broke the bearish flag pattern last Friday.The pattern target is placed at the level of 14,434. As the previous swing lows are also broken, the target is achievable.

The immediate target is placed at the level of 15,335. Before reaching these targets, the market may experience some sharp bounces due to short covering as the bear market rallies are sharp. The character of the next leg of the fall will be more of gap downs. Sometimes, it may open high and close low. It may be similar to the fall from April 5 high to May 12. The Nifty declined by 2,185 points or 12.2 per cent.

As mentioned earlier, 25 per cent correction is possible in the next two legs of the fall. In the first leg, Nifty may decline towards the 15,300 zone of supports where the 61.8 per cent flag pole is placed. Nifty may bounce from here to the 16,100 and 16,300 zones before beginning its last leg of fall in the current bear market. This entire process will take about 5-6 months. Then expect a base formation in the market. If everything goes well, we can see a base breakout in 2023. Till then, it is not the time to invest aggressively in the market.

In the bull case scenario, or the most optimistic view, the Nifty must close above last Friday’s high of 16,794 or 50 DMA of 16,787. Otherwise, every bounce is a deceptive one. In general, if the price is below 50 DMA when it is trending down, avoid fresh purchases. In an uptrend, the price will stay above 50 DMA and 20 DMA will always be in an uptrend. Meanwhile, Nifty is forming a broadening triangle, which is generally a bearish pattern. The triangle’s support is also placed at the 14,400 zone. Let us wait for this support to be tested.

On the monthly chart, Nifty never closed above the previous month’s high since October. The MACD and the TSI have given bearish signals. The KST is about to give a bearish signal as it has been declining for the past four months. The monthly RSI is already below the 60 zone and near the historical support of 55. This is why we expect the index to bounce from here, which would be a relief rally. Barring 2020, all corrections in the last six years were limited to less than 13 per cent, categorised as Category 1 correction. As we have already entered into a Category 2 correction (25-30 per cent), expect a correction of at least 25 per cent from the October 2021 top.

The 25 per cent correction level is placed at 13,953. In a worst-case scenario, the correction may extend over 30 per cent, which means testing of January 2020 top. The 30 per cent correction level is at 13,022, which is the 50 per cent retracement level of the rally of 2020-21. If at all it tests the January 2020 top, the correction will extend 33 per cent, which is now a remote possibility. The 13,953 level is also a channel line and may act as support. The Small-Cap 100 index has already corrected 30 per cent from its January top.

As per the stage analysis, this is nothing but capitulation or Stage 4. After the Stage 4 correction ends, the market will consolidate for a few months and form the Stage 1 base in the basing period or stage where accumulation or smart money pours into the market. During such a stage, look for stocks breaking out of the bases with all the long-term averages trending upwards in ascending order. The bear market corrections consumed 8, 13, and 21 months of time. The current correction is already eight months old. So, we expect the correction to end in another five months. In a worst-case scenario, the correction may take more time, i.e. another 13 months.

STOCK RECOMMENDATIONS

COROMANDEL INTERNATIONAL LTD. .......... BUY ........ CMP ₹943.00 

BSE Code : 506395
Target 1 : ₹1,030
Target 2 : ₹1,100
Stoploss : ₹880 (CLS)

A part of Murugappa Group, Coromandel International is India’s pioneer and leading agriculture-related solutions provider, offering diverse products and services across the farming value chain. The company established India’s first fertiliser plant at Ranipet, Tamil Nadu, in 1906. Its ‘farmer first’ approach, quality focus and consumer connect initiatives have helped gain farmers’ trust and established the ‘Gromor’ brand amongst the most trusted in the country. The brand has 39 per cent market share in India. Technically, the stock has formed a Stage 1, 46-week cup and handle pattern with a depth of over 25 per cent. It has fair relative price strength and has outperformed the broader market. It is trading above all the key moving averages. The stock is trading 6.28 per cent above the 50 DMA and 17.28 per cent above the 200 DMA. The Elder impulse system has formed a series of bullish bars, and the stock is trading just 2 per cent to the prior pivot level. For the last four weeks, the volumes have been above average, which indicates demand for the stock. The weekly MACD and RSI are in a strong bullish zone. The stock is also meeting a majority of CANSLIM characteristics. The EPS rank of 95, which is a great score, indicates consistency in earnings. The relative price strength (RS) rating is at 69 and improving while being the near the previous high. Buyer demand at is A- which is evident from recent demand for the stock and the group rank of 49 indicates it belongs to a strong industry group of chemicals-agricultural while a master score of B is close to being the best. Importantly, the stock is in a buy zone. The stock has formed a solid Stage 1 consolidation pattern and it is 3 per cent to the pivot. Buy this stock above ₹956. Maintain a stop loss at ₹880. The short-term target is placed at ₹1,030 and in the medium-term it can test ₹1,100

ELGI EQUIPMENTS LTD. .................. BUY .......................... CMP ₹406.55

 BSE Code : 522074
Target 1 : ₹500
Target 2 : ₹550
Stoploss : ₹368 (CLS)

Elgi Equipments manufactures a wide range of air compressors, which contribute 92 per cent of revenue and automotive equipment that contributes 8 per cent of the revenue. Elgi Equipments is the second-largest player in the Indian air compressor market with 22 per cent market share and among the top eight players globally. It has a direct presence in 26 countries and does business in over 120 countries. It has manufacturing units in three countries. It has a strong distribution network of over 200 worldwide. Technically, the stock has formed a 19-week cup formation with 41.11 per cent depth. It is trading just 3 per cent to the prior pivot level. For the past few weeks, the volume trend has shown an accumulation in the stock. It is trading above all the key moving averages. It is 40.45 per cent above the 200 DMA and 21.35 per cent above the 50 DMA. Including 20 DMA, all the moving averages are in an uptrend. The RSI is in a strong bullish zone in daily and weekly timeframes. The MACD is also above the zero line and the signal line. The daily ADX (32.61) shows solid trend strength. The +DMI is above the -DMI. The KST and TSI indicators show a bullish setup. The stock is trading above the anchored VWAP. As it is trading in a tight range for the past five days, the Elder impulse system shows a neutral zone. In short, the stock is trading near the pivot and a breakout will have a strong upside move. Buy this stock above the ₹406-420 zone with a stop loss of ₹368. The short-term target is placed at ₹500 and the medium-term target is ₹550.

(Closing price as of June 14, 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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