NIFTY Index Chart Analysis

In our earlier columns, we forecasted that the overstretched market may witness a sharper decline. As expected, Nifty declined by 6 per cent in just one week and broke the 10-week average support. This fall is after meeting the 100 per cent extension level of 26,276 of the March 2020 – October 2021 swing. After the six days of violent fall, the index has been consolidating for the past five days. It is quite normal to witness counter-trend consolidation after an impulse fall. Several factors have contributed to the recent market decline.[EasyDNNnews:PaidContentStart]

Notably, the FIIs recorded significant outflows and Nifty met all the pattern targets and extensions. The volatility index, India VIX, which has an inverse relationship, tested the historical lower level of below 12 several times recently. The monthly RSI was above the 80 zone for the last three months, which is extreme. Whenever it happened, the index registered over 10 per cent declines. Interestingly, from the low of the pandemic to March 2024, the index has given a 249.85 per cent return in 54 months.

Now, October 2024 is the 55th month, a Fibonacci number, and it has become a turning point. Nifty declined by almost a percentage point on October 7. The 20 DMA has entered a downtrend, which is a major directional change after several weeks.

The 10-week average is also flattened,which means the end of the strong uptrend. The widened and flattened Bollinger bands indicate further consolidation until the bands contract. The weekly Bollinger bands have already begun the contraction. Now, the index is 1.08 per cent below the 20 DMA. The index is 5.34 per cent below the 30-week average. As stated earlier, the index was deviated far from the mean. The current consolidation is a sign of mean reversion. The 20-week average is at 24,674, which may be tested soon to complete the mean reversion.

The behaviour around this level is very crucial for the trend and directional bias. Nifty has to close above the 38.2 per cent retracement level of 25,299 for a confirmation of the reversal. Above this level, the 20 DMA of 25,461 and the 50 per cent retracement level of 25,486 will be in crucial resistance zone. Normally, the counter-trend rallies end at 38.2 per cent or 50 per cent retracement levels. During the last six days of consolidation, declining volumes were the characteristic of a counter-trend consolidation. The consolidation of last week may continue for another week or two.

The weekly RSI declined into the neutral zone, and the MACD has given a fresh bearish signal. The daily RSI has been hovering around the zone of 40-50 for the last four days, which shows no momentum. The daily MACD line is below the zero line. These are signs of weaker trend strength. Nifty is still moving in the rising channel. The recent swing low of 24,694 is channel support. If this support is violated, expect more intense selling pressure. It is likely that Nifty may test the level of 24,049 – a 50 per cent retracement level of the prior upswing. The 30-week average of 23,828 will be the strongest long-term support. The Relative Rotation Graphs show that only the consumer durable index is showing strong and rising momentum.

All the other indices were losing their momentum. Expect these sectors to outperform. The Mid-Cap 100 and Auto indices are in the weakening quadrant. The media index is in the improving quadrant but is losing momentum. All the other sectors are in the lagging quadrant. Some of them are improving their momentum. Watch out for stocks declaring 20 per cent growth in earnings, and select the stocks with higher relative strength. The index may react from the resistance and resume the downtrend. Stay vigilant, and reduce the position size for now.

STOCK RECOMMENDATIONS

GE T&D INDIA LIMITED ..................... BUY ...................... CMP ₹1,870.00
BSE Code : 522275
Target 1 .... ₹2,160 
Target 2 ..... ₹2,250 
Stoploss....₹1,700 (CLS)

GE T&D India is a leading power transmission and distribution player. It offers products ranging from medium to ultra-high voltage (1,200 kV) for the power generation, transmission and distribution industry. The company provides a range of solutions for connecting and evacuating power from generation sources on to the grid, providing utilities with the tools needed to swiftly support the increase in demand. It also offers a wide range of products and related services. These include power transformers, circuit-breakers, gas-insulated switchgear, flexible AC transmission systems (FACTS), high-voltage DC (HVDC) and maintenance support. With five manufacturing sites, GE T&D India is ready to meet the industry’s growing demand for grid equipment and services in the future.

echnically, the stock has broken out of a 13-week consolidation and is trading at a new high. During the consolidation, it recorded a massive volume. The stock is trading well above all the key moving averages, and they are in an uptrend. It is 40.06 per cent above the 40-week average and 7.15 per cent above the 10-week average. The weekly MACD is about to give a bullish signal. The RSI is in a strong bullish zone. Its relative strength line is at a new high, showing outperformance compared to the broader market. The Stochastic RSI has given a fresh bullish signal. It is above the Ichimoku cloud and the MAMA FAMA KAMA band. The Elder impulse system has formed a strong bullish signal. In short, the stock has registered a bullish breakout. Buy this stock in the zone of ₹1,850-1,950. Maintain a stop loss at ₹1,700. The short-term to medium-term target is at ₹2,160-2,250.

USHA MARTIN LIMITED ...................... BUY ........................ CMP ₹441.80
BSE Code : 517146
Target 1 ..... ₹521
Target 2 .... ₹550 
Stoploss....₹365 (CLS)

Usha Martin is a leading manufacturer of steel wire ropes and is also engaged in manufacturing wires, LRPC strands, prestressing machines and accessories as well as optical fibre cables. The company’s wire rope manufacturing facilities in Ranchi, Hoshiarpur, Dubai, Bangkok and the UK produce the widest range of wire ropes that are applicable to various industries worldwide.

The company also has a comprehensive research and development facility in its manufacturing unit in Ranchi. Usha Martin has an extensive and dedicated network of distribution centres located across the globe. Technically, the stock has broken out of a 13-week cup pattern and 31-week ascending base. It has recorded massive volumes for the last two weeks, which were the highest in its history. It is trading at a new lifetime high and trading above all the key long-term and short-term moving averages. All the moving averages are in an uptrend. The MACD has given a bullish signal on the zero line. The RSI is in a bullish zone. Its relative strength line is rising near the high, showing outperformance. Institutional sponsorship has increased by 3.75 per cent. The KST is about to give a bullish signal. The Stochastic RSI is already in a bullish mode. The Elder impulse system has formed strong bullish bars. In short, the stock has broken out of a bullish pattern with heavy volume. Buy this stock above the ₹427-450 zone. Maintain a stop loss at ₹365. The short-term to medium-term target is placed at ₹521-550.

*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 October 15, 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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