NIFTY Index Chart Analysis

Fear has engulfed the domestic equity market. Aggressive Foreign Institutional selling, coupled with disappointing earnings, has undermined positive sentiment. After reaching a new lifetime high, the indices have plummeted below key support levels. The NSE benchmark index, Nifty50, has formed a significant bearish candle on both weekly and daily charts, marking its highest weekly volume since the last week of May 2023. This decline, accompanied by higher volume, is indicative of distribution, further evidenced by institutional selling.[EasyDNNnews:PaidContentStart]

The recent price action has overshadowed the gains of the previous three weeks, resulting in a megaphone or broadening formation. The week commenced with a positive gap, achieving a new high on January 19 at 22,124.15. However, the negative earnings surprise from HDFC Bank led to a sharp 3.79 per cent fall from the all-time high in just three days.

With only six trading sessions left in January, the Nifty50 has shown clear signs of topping. Historically, January has seen the formation of tops in at least 16 of the last 23 years. The index, having formed a bearish candle, reacted from the confluence of channel resistances, marking the biggest weekly drop since the third week of October. The presence of a Doji and Hanging Man candle, followed by a bearish candle, confirms a potential reversal. A negative close next week, which includes just three trading sessions, would further substantiate this reversal.

On a daily timeframe, the index tested and reacted negatively from the 20DMA. It formed a bearish candle on Saturday, signalling a negative trend. The RSI has confirmed its bearish divergence by closing below prior lows, while the MACD histogram points to strong bearish momentum. The ADX, with the -DMI moving above the +DMI and a declining ADX line, also confirms the reversal.

Short covering may induce a bounce due to the upcoming monthly expiry and the impending Budget announcement. In such a scenario, the index might form an inside bar next week in the most bullish case. To move higher, the index must first close above 21,658, the 20DMA. It faces major resistance at 21,834, the level before the flat base breakout. Surpassing 22,124.15 to form a new high appears challenging. Conversely, failing to exceed 21658 could lead to a downturn below last week's low, confirming the bearish implications.

Several sectoral indices, including Banknifty, FMCG, FinNifty, Media, and Consumer Durables, have moved into the lagging quadrant in Relative Rotation Graphs, while Oil and Gas, and Metals remain in the leading quadrant. The Realty index, though in the leading quadrant, is losing momentum, and other indices are also showing signs of weakness.

With four distribution days already recorded, any increase could shift the market status to a downtrend. The 50DMA is merely three per cent away. In the coming two weeks, the index may oscillate within the broad range of 21,834-100, with increased daily ranges and volatility. Investors should remain vigilant about their positions. PSU stocks are expected to gain attention as the Budget nears, with defence and railway stocks potentially outperforming. As earnings continue to be released and stock-specific activity persists, the market may consolidate in anticipation of the general elections in May. A breakout is expected around the second week of April, potentially initiating a robust and impulsive bull market.

STOCK RECOMMENDATIONS

GARDEN REACH SHIPBUILDERS & ENGG. .......... BUY ....... CMP ₹919.00
BSE Code : 542011
Target 1 .... ₹1,040 
Target 2 ..... ₹1,120 
Stoploss....₹854 (CLS)

Garden Reach Shipbuilders & Engineers Ltd is a premier shipbuilding company in India under the administrative control of the Ministry of Defence. It is primarily catering to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. GRSE is a diversified, profitmaking, and the first Shipyard in the country to export warships. It has delivered 100 warships to the Indian Navy and Indian Coast Guard. In addition to the shipbuilding, the company has also supplied various boats, pontoons, barges, fishing trawlers, fire floats, tugs, dredgers, passenger ferries, motor cutters, deck whalers, etc. It has three shipbuilding units and is near Kolkata. Its Engineering division manufactures portable bridges, deck machinery, marine pumps, etc. This division has two facilities. The company has a decent order book of nearly ₹25,000 crore. The stock has broken out of the 18-week cup pattern and registered a new high close. For the last two weeks, the volume recording at above-average validates the breakout and shows renewed buying interest. Its Relative price Strength is fairly at 69. The 20-week average acted as support and in an uptrend. The stock is well placed above all long-term averages, and the averages are in uptrend. The weekly MACD is about to give a bullish signal. The RSI took support at 60, and bouncing is a bullish signal, while the Elder's impulse system has formed a strong bullish bar. The stock is well above the MAMA-FAMA-KAMA band and above the Guppy's MMA. It closed above the Anchored VWAP resistance and extended 50 per cent of the prior swing. In short, the stock has broken out of a bullish pattern. Buy this stock at ₹920, and maintain a stop loss at ₹854. The short to medium-term target is placed at ₹1,040-1,120.

MAZAGON DOCK SHIPBUILDERS ............ BUY ................ CMP ₹2,364.15
BSE Code : 543237
Target 1 ..... ₹2,510
Target 2 .... ₹2,600
Stoploss....₹2,250 (CLS)

Mazagon Dock Shipbuilders is one of the leading shipbuilding yards in India. It was incorporated as a Private Limited Company in 1934. After its takeover by the Government in 1960, Mazagon Dock grew rapidly to become the premier war-shipbuilding yard in India. It has grown from a single-unit, small ship repair company into a multi-unit and multi-product company, with a significant rise in production, use of modern technology and sophistication of products. It is now Mini Ratna-I public enterprise company. Technically, the stock has broken out of the 18-week cup and handle pattern with above-average volume. It closed at just one per cent to the prior pivot. The Relative Price Strength line is also near a new high at 86 shows, an outperformance compared to the broader market. It is well placed above all long-term moving averages. All the averages are in the uptrend. It is 10.41 per cent above the 50DMA and 42.08 per cent above the 200DMA. The weekly and daily MACD are about to give a bullish signal, while the RSI is in the strong bullish zone. The Stochastic RSI has been in the bullish set-up and the stock also extended 38.2 per cent of the prior swings. As it is trading near the prior pivot, it cleared all the resistances. The Elder's impulse system has formed a strong bullish signal. In short, the stock has broken out of the bullish pattern and is trading near a pivot. Buy this stock above ₹2,365, maintaining a stop loss at ₹2,250. The short to medium-term target is placed at ₹2,510- 2,600.

*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 January 20, 2024)

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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