NIFTY Index Chart Analysis

The equity indices suffered significant losses last week. Nifty declined in all the five trading sessions and registered a 4.77 per cent fall. This fall is sharper than the first week of October’s fall and posted one of the sharpest declines in two years. With this fall, Nifty is back to below 200 EMA and 200 DMAs. It almost erased the previous four weeks’ gains. As suspected, the counter-trend rally ended at a 50 per cent retracement level. Friday’s massive volume decline is a caution for the bulls. The index may bounce for a day or two but may not sustain.[EasyDNNnews:PaidContentStart]

Importantly, Nifty is back to the 50-week, long-term support, currently at 23,530. Earlier, it bounced from this key moving average. Before its failure to sustain above the 100 DMA, the index formed two big high volatile candles of 2.5 per cent in an intraday move. These two candles and the five days of consolidation between these candles look like a double-top pattern on a line chart. The inverted head-andshoulders pattern also failed to meet its targets. The index spent a week above the breakout level but failed to gain momentum.

The 50 DMA also stayed in the downtrend, even though the index was above this for eight days. This is why the curvature of the moving average is important in defining the trend. Now, the 100 DMA has also entered a downtrend. The 50 DMA is below the 100 DMA, which is a short-term weaker sign. Nifty has formed a lower swing high and we expect a lower low below 23,263 soon.

A close below 23,530 will be a big negative, and the selling pressure may increase. The 61.8 per cent retracement level of the high of June 4 – September 27 is at 23,190, which is the strongest support. A close below this level will test the level of 22,800. In such a case, the market will complete the Category 1 correction of 13 per cent. After hitting a new high in the previous week, the Small-Cap 100 index declined by 5.29 per cent. The Nifty micro-cap 250 index also made a new high previous week and declined by 4.88 per cent from the high. This shows that the broader market also weakened last week.

The weekly RSI is at 44.41 in the neutral zone. The RSI (34.08) has entered the oversold zone. The weekly RSI may take support at 40 and bounce. By that time, the index may hit a lower low of 23,190. The daily MACD line declined below the zero line, and the histogram shows strong bearish momentum. Overall, the structure of the indicators is not so encouraging. This time, the index decline may extend beyond 13 per cent. Nifty has gained 250 per cent from the low of March 2020. There is only one correction of 18.36 per cent during the period of October 2021 - June 2022.

Currently, 11.47 per cent is a big correction after more than two years’ gap. If the index corrects 18 per cent and repeats history, it will test the June 4 low of 21,281. In the worst-case scenario, the index may correct more than 20 per cent and complete the Category 2 correction. The ongoing correction may be completed in the next 2-3 months. Post-correction, the new bull trend will be sharper than the previous two rallies. The reason for this rally will be the large amount of money flowing into the market.

Domestic institutions are sitting with huge amounts of cash. The future and option traders will come into the cash segment as the margin rules change. The strengthening dollar is the main reason for the fall. The Dollar index broke out of a two-year consolidation and closed above the October 2022 high.

It has an inverse relationship with the equity market. At the same time, the new Trump 2.0 protective policies may trigger global trade wars. This may impact the equity market in the short term. Watch the 23,530 support. A decline will trigger a further sharp fall. The correction may continue till the Union Budget. The budget may act as a trigger for the market to bounce. Stay on the side-lines and wait for the right opportunities.

STOCK RECOMMENDATIONS

NEWGEN SOFTWARE TECHNOLOGIES LIMITED .......... BUY ......... CMP ₹1,586.80
BSE Code : 540900
Target 1 .... ₹1,721 
Target 2 ..... ₹1,780 
Stoploss....₹1,440 (CLS)

Newgen Software Technologies provides digital transformation solutions, including enterprise content management, business process automation, and customer communication management. Serving global industries like banking, insurance and healthcare, it helps organisations enhance efficiency and improve customer experiences.

Technically, the stock has broken out of an 11-week, Stage 2 cup pattern and closed at a new lifetime high. The aboveaverage volume validated the breakout. Its relative strength line is at a new high. It closed above the 61.8 per cent extension level. The stock is trading above all the long-term and short-term averages, and all of them are in an uptrend. It is trading 45.65 per cent above the 40-week average and 22.46 per cent above the 10-week average. The weekly MACD has given a fresh, bullish signal. The RSI has been in a strong, bullish zone. The ADX (31.35) shows a strong uptrend. The +DMI is above the -DMI. The Stochastic RSI is in a bullish mode. The TSI is about to give a bullish signal. In short, the stock has registered a bullish breakout. Buy this stock in the zone of ₹1,550-1,580. Maintain a stop loss at ₹1,440. The short-term to medium-term target is at ₹1,721-1,780.

BLS INTERNATIONAL LIMITED ......................... BUY ................ CMP ₹482.60
BSE Code : 540073
Target 1 ..... ₹560 
Target 2 .... ₹590 
Stoploss....₹426 (CLS)

BLS International is amongst the top three global players in providing technology-enabled services and partnerships for governments and citizens. The company is partnered with embassies and governments worldwide, with a reputation for setting benchmarks in visa, passport, consular, e-governance, attestation, biometric, e-visa and retail services. It also provides citizen services to state and provincial governments across Asia, Africa, Europe, South America, North America and the Middle East. It has partnered with 66 governments to provide outsourced visas and passports.

Technically, the stock has broken out of a 13-week cup pattern. For the last three weeks, it has recorded aboveaverage volume. Its relative strength is at a new high, showing an outperformance compared to the broader market.

The stock closed at a new lifetime high and is trading above all the long-term and short-term averages. It is trading 30.63 per cent above the 40-week average and 17.76 per cent above the 10-week average. The weekly MACD shows a strong momentum. The RSI is in a strong bullish zone. The KST has given a fresh bullish signal. The Stochastic RSI has been in a bullish mode. The Elder impulse system has formed a series of bullish bars. In short, the stock has broken out of a bullish pattern. Buy this stock in the zone of ₹475-490. Maintain a stop loss at ₹426. The medium-term target is ₹560-590.

*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 December 23, 2024)

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