NIFTY Index Chart Analysis

In the previous column we discussed the mean reversion and probable volatile and impulsive moves. This has become real in the last nine trading sessions. The Nifty is back to below 20 DMA levels and broke the 50 DMA last week. Nifty broke other key supports last week. It closed below the previous flat base breakout level and formed a long-legged body candle on a weekly chart and closed below last week’s low. The Bollinger bands began to contract last week. Even though the benchmark index closed on a flat note on a week-onweek basis, the price structure was damaged a lot. [EasyDNNnews:PaidContentStart]

With a high probability, the corrective move will continue with higher volatile moves. We also mentioned several times about the impact of the low VIX regime. The volatile moves in the VIX are hinting caution about the direction. Last week, the VIX was up by 20 per cent and broke out of a 17-week range. It also broke out of a downward-sloping channel. Soon after the monthly expiry, it collapsed by 10.68 per cent, which means it retested the breakout. Finally, on a net basis, it was up by 7.43 per cent last week. We will witness more sharp declines if the India VIX moves above the zone of 13-15. 

Last Thursday, the index moved in the274.55 points range and declined by 193 points with an above-average volume. On the next day, it traded in the 175.2 points range. Finally, it closed below the 50 per cent retracement level of the day’s move and the previous day’s range. These huge swings combined with volatility in the VIX index. These moves are the results of the previous three-week higher degree rise.

The Nifty is now trading just 0.06 per cent above the 50 DMA and 0.75 per cent below the 20 DMA. It has faced resistance at 8 EMA. The Nifty attempted a sharp pullback on Friday but failed to hold the higher levels and retraced back to the 50 DMA. The RSI took support at the near 40 zone and bounced on the last trading day i.e. September 29, 2023. The situation may turn more bearish if the RSI declines below the level of 40 and the MACD line below zero. The trend strength indicator ADX has also declined, indicating the bulls are losing control.

The RSI has developed a positive divergence on a lower timeframe chart,which may result in a small pullback. Only in case of a bounce above the 20 DMA of 19,761 will it be positive. The 38.2 per cent retracement level of the prior downswing is also at a similar level of 19,771. Above this immediate resistance zone, the Nifty may test 19,943. But, in any case, if the Nifty declines below 19,585-50 it will be very negative. 

A decisive close below Thursday’s low of 19,492 will lead to a test of the previous low of 19,223. Before this, the 19,380 will act as a crucial support. In other words, the 19,380-771 zone is crucial for the short-term perspective. The market may consolidate within this for at least one week. In a most bear case scenario, if it closes below 19,223, It will form a major low, and the market status will change into a confirmed downtrend. The mediumterm downside target zone is at 18,525- 124. The 200 DMA is currently at the 18,498 level. Practically, the level of 20,222 is an intermediate top now. The global market broke the important support levels and the bearish patterns. 

With the negative news flow about the US economy, the Dow declined by 6.6 per cent from the recent top and broke the rising wedge pattern, which is strongly bearish. The Dollar index (DXY), back to near the USD 107 zone, is negative for the equities worldwide. On the RRG charts, all the sectoral indices lost their momentum except PSU banks. The Nifty metal, pharmaceutical, media, and consumer durable indices were in the leading quadrant but lost momentum. The oil and gas, bank and FMCG indices were in the lagging quadrant. The auto and realty indices were in the weakening quadrant. The Nifty IT index is the only one showing some relative strength and momentum.

STOCK RECOMMENDATIONS

LINC LIMITED .............................. BUY ............................... CMP ₹765.75

 BSE Code : 531241
Target 1 .... ₹880 
Target 2 ..... ₹942 
Stoploss....₹705 (CLS)

Linc Limited is one of India’s most trusted writing instrument manufacturers and among the top three brands. The company has a national and international presence in over 50 countries. It has a 6.6 per cent market share in the writing instrument segment as of FY23. It is the exclusive importer and distributor of Asia’s largest stationary giant Deli and the world-famous pen brand Uni-Ball of Mitsubishi Pencil Company. The products include ball pen, roller pen, gel pen, pencil, geometry box, erasers, permanent marker and whiteboard markers. Its 83 per cent of revenue comes from the pen segment and domestic sales contribute 79 per cent. The company has three manufacturing facilities in Gujarat and West Bengal. It has proposed to expand its capacity through a new manufacturing facility in Gujarat. Technically, the stock is trading near the prior pivot level and has formed a cup pattern for the last 17 weeks. The stock closed above the 78.6 per cent retracement level of the recent correction. Its price Relative Strength line is at 85, and it is showing an outperformance compared to the other listed peers. It is trading above all the key moving averages and all the long-term averages are in an uptrend. It is 14.11 per cent above the 50 DMA and 28.39 per cent above the 200 DMA. The weekly MACD is about to give a bullish signal. The RSI bounced into the bullish zone. It is above the Anchored VWAP resistance and above the Ichimoku cloud. The Elder’s impulse system has formed a strong bullish bar. In short, the stock is about to register a breakout. Buy this stock above ₹780. Maintain a stop loss at ₹705. The short-term to medium-term target is placed at ₹880-942.

ERIS LIFESCIENCES LTD. ................... BUY ....................... CMP ₹877.05

BSE Code : 500038
Target 1 ..... ₹1000 
Target 2 .... ₹1040 
Stoploss....₹797 (CLS)

Eris Lifesciences Ltd. is India’s only pharmaceutical company with a pure-play domestic branded formulation business model. It ranked 21 in the IPM and the company has established a leading presence in its core cardiometabolic franchise. It has also successfully diversified into dermatology, neuropsychiatry and gynaecology. These three segments contribute 20 per cent of its revenue. About 10 combinations are in the pipeline in diabetes, cardiology and neurology. Four combinations in clinical trials are expected to be launched in Q3 and Q4 of FY24. The company has set up a second manufacturing facility in Gujarat with a capital outlay of ₹230 crore. Expansion is underway to include the dermatology block. Technically, the stock has formed a six-week, flat base. It hit an all-time high last week but closed in the base. A massive volume shows an increased demand for the stock. It is trading above all the key moving averages. All the long-term averages are in an uptrend. It is 8.09 per cent above the 50 DMA and 6.58 per cent above the 20 DMA. The RSI is in a strong, bullish zone. The weekly MACD shows a strong bullish momentum. The Elder’s impulse system has formed a strong bullish bar. The KST and the TSI indicators have been in the bullish set-up. The weekly ADX at 41.78 shows trend strength. As the stock is trading at a new high, it has cleared all the resistances. In a nutshell, the stock has registered a multi-year breakout. Buy this stock above ₹880. Maintain a stop loss at ₹797. The short-term to medium-term target is at ₹1,000-1,040.

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

(Closing price as of September 29, 2023)

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.

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]