NIFTY Index Chart Analysis

The equities benchmark indices ended a three-week losing streak in an extended trading week on the back of a prebudget rally. However, this time, the equity indices have not reacted adversely to the General Budget. Nifty and Sensex closed flat on the day of the budget, as institutional investors did not participate, and as a result, the volumes were very low on the event day. On the face of it, the budget looks neutral and non-eventful for the markets. On a fresh week, post-budget, the benchmark resumed its downside move and ended the upswing after testing the 200 EMA.[EasyDNNnews:PaidContentStart]

Technically, Nifty has formed a weekly bullish engulfing candle after three weeks of negative bias. The index opened with a gap down on January 27 and formed a fresh lower low. With this low, Nifty was corrected by 13.28 per cent from the September 27 top and completed the Category 1 correction, which we have been mentioning for the last two months. Now, it is important that the bullish engulfing candle must get a confirmation for its implications by closing above it.

This means Nifty must close above the level of 23,633. It is also the 200 EMA (23,618) level. The index faced resistance on Saturday at this long-term average. Above this, the 50 DMA is at 23,809, and the 200 DMA is at 24,005, which are the important resistance points. For a trend reversal, Nifty must clear all these resistance points. Due to the absence of institutions on budget day, the volumes were recorded as much lower after January 1 and below the average. The weekly volumes increased, and the highest volume was recorded after eight weeks.

This can be a hint about the index’s positive bias. The contraction in Bollinger bands hints at an impulse move in the coming days. The index has rallied 845.55 points or 3.71 per cent from Monday’s low. The volumes were higher in this rally. The daily RSI is above the 50 zone, and the weekly RSI took support at the 40 zone and moved higher. The MACD has given a bullish signal below the zero line. The weekly MACD shows declined momentum. This week’s close will be crucial for the markets, as there are a series of events lined up.

First, the reactions from the institutions to the budget. Second, the RBI monetary policy. Third, the introduction of a direct tax code in the budget. Fourth, the sentiment surrounding the Delhi assembly election. These four factors will influence the market direction. Expect highly volatile moves during the next week. The VIX and IV have already begun to rise after cooling off postbudget. Now, watch Nifty’s behaviour around the 23,250-23,650 zone. The 23.6 per cent retracement level of 13 per cent decline is at 23,610.

So, this confluence of resistance is crucial now. A weekly close above 23,650 will result in a bounce towards 24,120. Prior to that, the 10-week average was 23,756, and the 50-week average was 23,767, which is another confluence of resistance. If the Nifty closes above 24,120, it may lead to a long countertrend consolidation. In a strong bull case scenario, the index may test 24,500- 24,900 and end the correction phase. However, if the index closes below the budget day low of 23,222, it will be negative and can resume the downtrend.

The last swing is mostly due to the short covering before the event risk. It is important to watch the index behaviour between 22,786-23,650 zone. Will counter-trend consolidation continue or not? A close above 22,786 will lead to a bigger fall in Category 2 correction. The target for the Category 2 correction is roughly about 20,000. Before that, the index may support the June 4 low of 21,281. With the budget proposal, the consumer, FMCG and automotive stocks will be in the limelight. Stay neutral on railways and defence. The February 7, 2025 close will give clues about future direction.

STOCK RECOMMENDATIONS
DIVI'S LABORATORIES LTD. ...................... BUY ...................... CMP ₹6,092.20
BSE Code : 532488
Target 1 .... ₹6,450 
Target 2 ..... ₹6,600 
Stoploss....₹5,700 (CLS)

Divi’s Lab has been among the top pharmaceutical companies in India. It is a recognised supplier of generic APIs (active pharmaceutical ingredients) and a custom manufacturer for big pharmaceuticals. It is also among the top API manufacturers in the world. The company also manufactures intermediates and nutraceutical ingredients. At least 10 APIs are in various stages of research and development and pilot-scale development. The company is under custom synthesis of APIs and intermediates for global companies with a portfolio of products across diverse therapeutic areas.

Technically, the stock is trading near the pivot of the 16-week consolidation. It is in Stage 2, second base and is trading just 3 per cent to its all-time high. It almost tested the 40-week average and bounced with good earnings’ support. During the base formation, the stock oscillated around the 10-week average. Currently, it is 3.18 per cent above the 10-week average. The weekly MACD is above the zero line and about to give a bullish signal.

The RSI has moved into a bullish zone. The Stochastic RSI has given a fresh, bullish signal. The ADX (28.19) is rising, showing a strong trend strength. The Elder impulse system has formed a strong bullish bar. In short, the stock is trading near the pivot. Buy this stock in the zone of ₹6,080-6,170. Maintain a stop loss at ₹5,700. The short-term to medium-term target is at ₹6,450 - ₹6,600.

BAJAJ FINANCE LIMITED ........................ BUY ....................... CMP ₹8479.90
BSE Code : 500034
Target 1 ..... ₹9,000
Target 2 .... ₹9,200 
Stoploss....₹7,900 (CLS)

Bajaj Finance is a leading player in retail. The company has a diversified lending portfolio across retail, SME and commercial customers. It has a significant presence in urban and rural India. It also accepts public and corporate deposits and offers a variety of financial services and products to its customers. It is also engaged in mortgage lending, which includes loans against properties, home loans, etc. It also offers loans to selfemployed, SMEs, and enterprise loans.

Technically, the stock has broken out of a 17-week cup pattern. It closed at a new high. In fact, the stock has broken out of 40 months of consolidation, which is Stage 1. It closed at a new with high volume. The price pattern is an ascending triangle on the monthly chart. Its relative strength line is at a new high, showing an outperformance compared to the broader market. All the long-term and short-term averages are in an uptrend.

The weekly MACD is above the zero line, and the histogram shows a strong bullish momentum. The RSI is in a strong bullish zone. The ADX is rising, and the +DMI is above the -DMI, showing a strong bullish trend. The Elder impulse system has formed bullish bars. As the stock is trading at a new high, it has cleared all the resistance. In short, the stock has registered a bullish breakout. Buy this stock in the zone of ₹8,200-8,400. Maintain a stop loss at ₹7,900. The short-term to medium-term target is at ₹9,000 - ₹9,200.

*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 04, 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.

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