NIFTY Index Chart Analysis

The NSE benchmark index Nifty 50, though it hit a fresh all-time high, is struggling to cross the 61.8 per cent extension level of the prior uptrend. In June 2023, the breakout of the 86-week Stage 1 consolidation was registered and the same was retested in October 2023. After this retest, the index decisively entered Stage 2. For the last six weeks, it has failed to cross decisively above the level of 22,039. During the retesting of a breakout, it consolidated for 11 weeks before the breakout. Typically, the Stage 2 bases are 6-8 weeks in length. Last week, the Nifty closed at 22,040, and at the beginning of the current week, it opened above it and closed at the highest level.[EasyDNNnews:PaidContentStart]

Last week, by closing above the 22,000 level, the Nifty filled the January 15 gap on a closing basis. Before this, at least seven attempts were made to fill the gap on a closing basis but all in vain. The current price pattern is an ascending triangle within the broad rising channel. The 23-day ascending triangle breakout pivot is at a prior high of 22,127. The breakout turned into a reality on February 19 but with a low volume. The ascending triangle breakout must have a high volume. If the index continues to move higher with low volume, we need to be cautious about the trend sustenance.

In any case, if the volume picks up in 2-3 days after the breakout, we can expect broader market participation in the rally. The pattern target is around 1,000 points from the breakout level, which is around 23,100. Interestingly, the daily Bollinger bands moved horizontally during the pattern formation without any squeeze. If they expand, expect the index to move higher. The most positive aspect of the price pattern is that before the pattern breakout, the daily RSI shifted its range into the strong bullish zone by moving above 60.

Usually, a breakout with an RSI range shift is the most powerful. The MACD also gave a fresh, bullish signal. The positive directional index, +DMI, is above the -DMI, which is another positive signal. However, there is a negative divergence between weekly and daily timeframes in these leading indicators, which is a sign of caution. On the downside, a close below 22,000 again on a weekly basis will be the first sign of weakness. The rising channel support is placed at the level of 21,834 and the 20 DMA support is at 21,672. A decline below the 50 DMA, currently at 21,590, will result in a change in market structure.

During the current base formation, the 10-week average, acting as strong support, is now at 21,741. So, this 21741-590 support zone is critical for the trend to be intact. A close below this zone will also result in a channel breakdown. Another important and weak element of the current market structure is that the relative strength (RS) has been declining for the last few months. It has been flattened for the last six weeks. If the RS line moves above its 21 EMA, it will give us confidence in the strong bullish bias.

The volumes have been declining for the last seven days, and this is another element of doubt about the rally. Three consecutive indecisive candles at an all-time high also indicate caution. Next week, the market may open positively and may hit a new high. In this scenario, the question is: Will it be successful to continue the rally by another 4 -5 days? As the weekly Bollinger bands have expanded, and the index is 6.17 per cent above the 20-week average, expect some mean reversion. In a nutshell, the market structure favours bulls, but with an element of doubt. At higher levels, expect some intense profit-booking sessions with high volatility. Protect the profits with strict stop losses. The index must form a lower low below the level of 21,590 for a downtrend.
 

STOCK RECOMMENDATIONS

SML ISUZU LIMITED ............... BUY ............... CMP ₹1,650.85

BSE Code : 505192
Target 1 .... ₹1,850
Target 2 ..... ₹1,950 
Stoploss....₹1,480 (CLS)

SML ISUZU (previously Swaraj Vehicles) manufactures light commercial vehicles (LCVs) and medium commercial vehicles (MCVs). Up to 67 per cent of its revenue comes from passenger vehicles, primarily buses. The cargo vehicle segment revenue is about 26 per cent. It is engaged in the business of spare part sales. The company’s manufacturing facility at Nawanshahr, Punjab has the capacity to manufacture 24,000 units per annum. During the last financial year, the volume growth was attractive at 68 per cent. The company has a presence in Bangladesh, Bhutan and Nepal and is exploring opportunities in the African and West Asian markets. The stock has broken out of a 10-week, Stage 2 cup pattern. This is the third base in Stage 2. The stock is moving higher base by base. It is well-placed above all key long-term moving averages. Its relative strength is at a new high and above the 21 EMA, showing an outperformance compared to the broader market. It is trading 29.31 per cent above the 40-week average and 16.04 per cent above the 10-week average. The weekly MACD gave a fresh bullish signal last week. The RSI is in a strong bullish zone. The stock is trading at a new high and has cleared all resistance. The Stochastic RSI has been in the bullish set-up. The KST is about to give a fresh, bullish signal. All the short and long-term moving averages in Daryl Guppy’s GMMA indicator are in the uptrend in an ascending order, which is strongly bullish. There are rumours of a takeover of the company by another automobile major. Buy this stock in the zone of ₹1,600-1,660 zone. Maintain a stop loss at ₹1,480. The short to medium-term target is placed at ₹1,850 followed by ₹1,950.
 

NOCIL LIMITED ...............BUY ............... CMP ₹291.65

BSE Code : 500730
Target 1 ..... ₹330
Target 2 .... ₹355 
Stoploss....₹265 (CLS)

NOCIL manufactures rubber chemicals used in tyre and other rubber processing industries. It was established in 1961 and is the largest rubber chemical manufacturer in the country. The company’s rubber chemicals include anti-degradants, accelerators and other related chemicals. It also manufactures pre and post-vulcanisation inhibitors. It has over 20 rubber chemical products in its portfolio. The company is a market leader in the segment, with a 40 per cent market share. Its research and development capabilities lead to significant cost reduction of production. Its research and development centre in Mumbai is recognised by the Ministry of Science and Technology. Technically, the stock is trading at the 75-week cup pattern. It has broken out of a 10-week flat base with above-average volume. Its relative strength line is at a new high and above 21 EMA, showing an outperformance compared to the broader market. It is comfortably placed above all the key moving averages. It is 22.68 per cent above the 40-week average and 7.88 per cent above the 10-week average. The weekly MACD is showing a strong bullish momentum. The RSI took support at 60 and bounced, which is a positive sign. The Elder’s impulse system has formed a strong bullish bar. It cleared Anchored VWAP resistance and is above the Ichimoku cloud. The Stochastic RSI has given a fresh, bullish signal. The KST has been in the bullish set-up. All the long and short-term averages are in the uptrend. Buy this stock at ₹292. Maintain a stop loss at ₹265. The short to medium-term target is placed at ₹330-355.
 

*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 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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