NIFTY Index Chart Analysis

As suspected and suggested in the last technical note, the Nifty closed with modest losses in the month of January and history was repeated. But it formed a doji candle at a lifetime high on the monthly chart, signalling indecisiveness at the higher levels. The Nifty ended its two-week declining phase and closed above the prior week’s high. As mentioned earlier, the bears have failed to pull down the index for three consecutive weeks, which was needed for a decisive downtrend. Even on the daily timeframe, the index has not declined by more than three consecutive days. 

For a downtrend, the index has to form a swing low below 21,137. Until then, the market status will be ‘uptrend under pressure’. In an expected move, the Nifty formed a new lifetime high last Friday. But soon after hitting the new high, it declined sharply by 288 points from the day’s high and formed a shooting star or an inverted hammer candle. In this sharp decline, it filled the January 17 gap area. Finally, it settled above the counter-trend consolidation’s resistance. [EasyDNNnews:PaidContentStart]

Interestingly, the counter-trend consolidation looks like a channel or flag. It has broken out of this flag pattern by closing above the resistance area. But, on a renewed selling pressure at higher levels, the index has formed a bearish engulfing candle by closing below the prior inverted hammer’s low. The price structure of the last two days is not suitable for taking aggressive long positions, as the index is still within the rising channels. Only a decisive breakout of channels will lead to a strong uptrend. 

On the downside, the December 14 gap area of 20,950-21,074 is a crucial support area. Let us watch if the bulls can protect this support zone. If the Nifty closes below this zone, the index will form a lower low, resulting in a major breakdown. For the last 35 days, the Nifty has been trading in the 20,977-22,126 range. This broad-range consolidation looks like a topping formation. During the last 13 days, the volumes were higher than the previous months, indicating the distribution. This is one of the Stage 3 characteristics. 

The Nifty sustained above the 20 DMA for the third successive day, and the Bollinger bands were flattened. The 10-week average has also acted as support for the last two weeks. Unless a decisive close takes place below the 10-week average of 21,415, the bulls will dominate the market. The 50 DMA is at 21246, which is 2.86 per cent below the current price. This 21,246-415 will be the immediate strong support zone. On other hand, the level of 20,977 is a trend-decider support and a break below this level would act as a confirmation for the downtrend. 

Until then, the index will consolidate within the 1,000 point range. On the upside, the new high of 22,126.80 is the resistance level. Above this, the immediate resistance is at 22,232. We mentioned this target in our previous columns. The daily RSI shows a clear negative divergence and is in the neutral zone. If the RSI declines below 44-40, expect more downside in the price. The weekly MACD shows that the momentum is waning. The daily ADX is below 20 and is an indication of loosening strength. 

In any case, the Nifty may close above 22,232 decisively on a weekly basis so that we can expect more upside with a target of 23,155. As stated earlier, the 18-month target is at 26,000. The market expects the government’s policies to boost the many sectors and promote development. The PSUs will be in focus for at least another two years. The Nifty metal and IT sectors entered into the leading quadrant in RRG graphs and will be in focus for the next week. Though the oil and gas and real estate sectors are in the leading quadrant, they may witness profit booking as they are losing momentum. The PSU Bank index is near the leading quadrant and may also be in the limelight. All other sectors are in the lagging quadrant, which may lead the market to fall. 

STOCK RECOMMENDATIONS 

ASTRA MICROWAVE PRODUCTS ......... BUY ......... CMP ₹659.80 

BSE Code : 532493
Target 1 .... ₹730
Target 2 ..... ₹765
Stoploss....₹590 (CLS) 

The company was incorporated in 1991 by a team of distinguished scientists with experience in RF | microwave | digital electronics and management of projects with high-technology content. The company is into design, development and manufacturing of RF and microwave components, sub-systems and systems. Its products find applications in high-end markets of defence, aerospace, space, meteorology, telecom and civil communications. It has five facilities in Hyderabad and supplies various kinds of electronic warfare sub-systems and components to government defence companies. With the increased defence expenditure, the Make in India focus is expected to drive healthy growth in the sector. Technically, the stock has broken out of an eight-week base and is trading at a new lifetime high. The volumes were recorded above average for the last two weeks. Its relative price strength is at a new high and shows outperformance compared to the broader market. It is above all the key long-term and short-term moving averages. All the moving averages are in an uptrend. It is trading 41.32 per cent above the 40-week average and 7.83 per cent above the 10-week average. The weekly MACD is about to give a bullish signal. The RSI is in the strong bullish zone. The Elder’s impulse system has formed strong bullish bars. As the stock is trading at a new high, it has cleared all the resistance and is trading well above the Ichimoku cloud and Anchored VWAP. The weekly ADX (57.25) shows a strong strength in the uptrend. The Stochastic RSI has given a fresh bullish signal. In short, the stock has registered a bullish breakout. Buy this stock above ₹655. Maintain a stop loss at ₹590. The short-term to medium-term target is at ₹730-765. 
 

TVS HOLDINGS LIMITED ...........BUY ......... CMP ₹8,949.80 

BSE Code : 520056
Target 1 ..... ₹9,600
Target 2 .... ₹10,600
Stoploss....₹8,320 (CLS) 

Formerly known as Sundaram Clayton Limited, TVS Holdings is one of the largest auto components manufacturing and distribution groups in India. It is the leading supplier of aluminium die castings to the automotive and non-automotive sectors. The company has emerged as one of the preferred solution providers in machined and sub-assembled aluminium castings. It is known for the early design stage to develop and supply finished products. The company has built strategic partnerships with global original equipment players. It manufactures aluminium pressure die castings for heavy commercial vehicles, passenger cars and two-wheelers. Technically, the stock has broken out of the 16-day tight range. For the last two days, the recorded volumes were above average. It has also broken out of a symmetrical triangle. The relative price strength line is rising and above the 21 EMA, showing outperformance compared to the broader market. It is trading above all the long-term moving averages. It is also near an all-time high. It is 57.83 per cent above the 40-week average and 9.35 per cent above the 10-week average. All the moving averages are in an uptrend. The weekly MACD shows an improved bullish momentum. The RSI is in the strong bullish zone and has made a higher high. The Elder’s impulse system has formed a strong bullish bar. The KST is in the bullish mode, and the Stochastic RSI is about to give a bullish signal. It is above the Anchored VWAP and Ichimoku cloud. In short, the stock has registered a breakout and is trading near an all-time high. Buy this stock at ₹8,945. Maintain a stop loss at ₹8,320. The short-term to medium-term target is at ₹9,600-10,600. 
 

*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 February 06, 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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