NIFTY Index Chart Analysis

Nifty has formed a perfect Doji candle on a weekly chart. After last week’s 573-point decline, this indecisive candle’s low has become crucial support. After a sharp decline, the index has consolidated and filled Monday’s gap. Before the event risk (Union Budget), the index may spend time in a counter-trend consolidation. Expect a spike in volatility. The volumes were higher in the previous week and registered a second consecutive distribution week. Meanwhile, the earnings of Infosys and HCL Technologies disappointed the street. [EasyDNNnews:PaidContentStart]

Reliance Industries announced better earnings after four quarters but did not enthuse the market much. The earnings season so far has not been encouraging. With this, the valuations are seeming to be a bit pricey. The Union Budget, Donald Trump’s presidency, rupee depreciation and the RBI policy are the near-term event risks. In these conditions, the index has already declined by 12.29 per cent from its all-time high, almost completing Category 1 correction. 

Now, the question is whether it will enter into a Category 2 correction of 25 per cent decline from the top. History is in favour of it. Heavyweight stocks such as Reliance Industries and HDFC Bank are trading below the 200-DMA. In fact, more than 50 per cent of the Nifty stocks are trading below the 200-DMA. Major stocks like ITC, Hindustan Unilever, Bajaj Twins, Larsen and Toubro, Kotak Bank and Asian Paints have been underperformers for the last two years and did not participate in Nifty’s rally. 

Importantly, many Large-Cap stocks, including Reliance Industries, have already completed Category 2 corrections, which is a fall of more than 25 per cent. Nifty has formed lower highs and lower lows in all the timeframes, which is a classic downtrend sign. The index has entered into a five-year time cycle, too. Earlier, in 2010, 2015 and 2020, the index corrected more than 25 per cent and underwent Category 2 correction. Post the pandemic crash of 39 per cent, the index is in a five-year cycle now. 

In any case, the index failed to bounce strongly from the current levels to the new top, expecting a Category 2 correction of at least a 25 per cent fall. The immediate downside targets are placed at 22,557 and 21,679. Below this, the June 4 low of 21,281 is the crucial support level. If the Category 2 correction is a reality, the index will fill the December 4, 2023 gap by testing 20,291. With this, the 22.78 per cent correction will be mostly completed with 100-200 points plus or minus. The base formation may happen around this level. 

Time-wise, this correction may be completed by May-June 2025. There is historical evidence for such a strong bullish bias. Whenever the index declined 25 per cent or more, it bounced 100 per cent from the bottom. A recent example is that after the March 2020 decline of 39 per cent, the index rallied 147.69 per cent in just 82 weeks. Later, it corrected by 18.36 per cent during the period of October 2021 - June 2022. From this bottom (15,184), the index rallied by 73.07 per cent. After the 2015 correction of 25.15 per cent, the index rallied by 80.97 per cent. 

The index is trading just above the rising trendline support drawn from the March 2020 low. The 100-week average is also almost at the same place. The 22,800- 22,600 zone will act as support for now. In any case, if this support zone is violated, Category 2 correction will be confirmed. As a series of event risks are lined up, it is better to be on the side-lines for now. The index may test the 50-week average of 23,686 if there is any retracement next week. The 200-EMA is also at 23,673. As the 50-DMA is below the 200-DMA, the index registered a ‘Death Cross’, a long-term bearish signal. In this condition, stay highly selective on new investments. 

STOCK RECOMMENDATIONS
KRN HEAT EXCHANGER & REFRIGERATION LTD ............. BUY ........ CMP ₹844.80
BSE Code : 544263
Target 1 .... ₹980
Target 2 ..... ₹1,040
Stoploss....₹765 (CLS) 

KRN Heat Exchanger and Refrigeration Limited is a leading manufacturer and exporter specialising in aluminium/copper fins and copper tube heat exchangers, water coils, condenser coils, and evaporator coils. Its products are supplied to OEMs in the heating, ventilation, air conditioning, and refrigeration industry. Its clients include Daikin India, Schneider Electric, Voltas, Carrier, Eberspaecher, Kirloskar, Blue Box, Knorr Bremse, Voltas, etc. It has a state-of-the-art manufacturing facility integrated with the latest machines, tools, and technologies sourced from around the globe. 

Technically, the stock has broken out of a double-bottom pattern, and is trading at a new high. It is above all the key moving averages. The Bollinger bands are expanding, and the 20 DMA is in the uptrend. It is 16.91 per cent above the 50 DMA. The MACD has given a fresh bullish signal. The ADX is rising and shows a solid strength in the trend. The RSI is in the bullish zone. The KST has given a fresh bullish signal. The Stochastic RSI has been bullish. The Elder impulse system has formed strong bullish bars. In short, the stock registered a bullish breakout. and is trading at a new high. Buy this stock in the range of ₹834-848. Maintain a stop loss at ₹765. The short-term to medium-term target is ₹980-1,040. 

BHARAT DYNAMICS LTD ........................ BUY ....................... CMP ₹1279.05
BSE Code : 541143
Target 1 ..... ₹1,540
Target 2 .... ₹1,600
Stoploss....₹1,170 (CLS) 

Bharat Dynamics Limited (BDL) is a public sector undertaking (PSU) under the Ministry of Defence, Government of India. It is a manufacturing base for guided missile systems and allied equipment for the Indian Armed Forces. BDL has been working in collaboration with DRDO and foreign original equipment manufacturers (OEMs) for the manufacture and supply of various missiles and allied equipment. Technically, the stock has broken out of an ascending triangle. For the last three days, the volumes were recording above average and highest in recent times. Prior to this, the stock declined by 50.41 per cent from the top. The stock is trading above all the long-term and short-term averages, and all the averages are in the uptrend. 

The stock is trading 1.81 per cent above the 40-week average and 8.41 per cent above the 10-week average. The weekly MACD is above the zero line, and the histogram shows a strong bullish momentum. The weekly RSI is about to move in the bullish zone. The KST has given a fresh bullish signal, and the Stochastic RSI has been bullish. The ADX (24.26) shows a solid strength in the trend. In short, the stock has broken out of a bullish pattern. Buy this stock for ₹1,275-1,295. Maintain a stop loss of ₹1,170. The short-term to medium-term target is at ₹1,540-1,600. 

*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 21, 2025) 

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. 

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]