NIFTY Index Chart Analysis: IN A STATE OF EXHAUSTION

The equities staged a remarkable rebound on the final day of the financial year, setting a positive tone for the new financial year. This surge led to a new lifetime high at 22,529.95, effectively nullifying the January-March topping cycle. The current upswing is marked by its impulsiveness, with a gain of 819.75 points or 3.78 per cent in just seven trading sessions. Despite the market making new highs, the concerns have remained for the last three months. The price structure since the January 23 lows lost its rhythm. There were more down-side candles than advancing candles, and the declining days attracted more volumes, which is a distribution characteristic. [EasyDNNnews:PaidContentStart]

Moreover, the recent fresh all-time high is hit on the back of lowest daily volume after February 28. Last week, it registered the lowest volume after November. Most importantly, the declining and advancing days do not exceed more than couple of days. Despite closing below the previous week’s low on March 13 and forming a bearish candle, the market has displayed resilience. The bears failed to pull the index below the 10-week average on a closing basis, indicating strong support. 

For the past 10 weeks, the Nifty has been finding support on the moving average and bouncing back. Although the index is making higher highs, the weekly RSI has yet to form a high, and developed a negative divergence. The weekly MACD has given a bearish signal, and the histogram shows an increased bearish momentum. This situation, where the index makes higher highs but momentum indicators are declining, is a clear case of exhaustion. The index has formed its second consecutive evening star-like candle on a monthly chart. It closed above the previous month’s high. 

Interestingly, the price ranges for the previous two months are 767 points and 816 points, which is why the price structure looks the same. Before these two candles’ formation on the monthly chart, in January, the Doji candle failed to get a confirmation for its bearish implications. Importantly, after a breakout of four months of consolidation between August and November 2023, the index rallied by 11.90 per cent or 2,396 points. Since there were no major corrections since the March 2023 low, the time cycle calls for a correction. 

From October 2022 high to the June 2022 low, which was about an 18 per cent correction from the lows of June 2022, the recent lifetime high was formed after 21 months, which is the Fibonacci number. The Fibonacci numbers significantly impact the monthly chart in identifying major tops or resistance. If we assume that 22,529.95 is the intermediate top, expect a correction towards 21,137, which is the prior major low and just a 10 per cent correction level from the all-time high. If the index ignores the Fibonacci effect and continues the rally, expect the index to test 23,155 by July-August.

On the downside, 22,163 is the crucial support. Fundamentally, the valuations look expensive. The Nifty’s price-toearnings (PE) ratio is at 24.24. During February 2021, the PE ratio was at an all-time high of 35.70. As per the valuation metrics, the PE ratio of 24-25 is treated as a bubble territory. The RRG charts show that PSU Bank, Energy, Auto and Pharmaceutical indices are in the leading quadrant but losing momentum. The Bank Nifty, consumer durable indices and Fin Nifty have entered into the improving quadrant with an increased momentum. 

The sectors may outperform in the near term. All the other sector indices are lacking momentum and relative strength. In the current market conditions, it’s crucial to exercise extreme caution. The index has reached an overvalued and extreme overbought zone, indicating a potential for correction. Any exuberance due to political reasons must be supported by earnings growth. Otherwise, sooner or later, the equities will find a suitable valuation. This is not a time for complacency but for heightened awareness and vigilance.

 

STOCK RECOMMENDATIONS 
 

THE INDIAN HOTELS CO. LTD. ......... BUY ......... CMP ₹604.95 

BSE Code : 500850
Target 1 .... ₹699
Target 2 ..... ₹710
Stoploss....₹555 (CLS) 

The Indian Hotels Company Limited (IHCL) and its subsidiaries bring together a group of brands and businesses that offer a fusion of warm Indian hospitality and worldclass service. The portfolio of hotel brands includes Taj, SeleQtions, Vivanta and Ginger. The Indian Hotels Company is South Asia’s largest hospitality company by market capitalisation. IHCL has a portfolio of 196 hotels, including 40 under development globally across four continents, 12 countries, and over 100 locations. IHCL signed 19 hotels in the current fiscal, adding over 2,000 rooms to its portfolio in destinations such as Delhi-NCR, Mumbai, Kochi Kolkata, Ahmedabad, Bhubaneshwar, Udaipur and debuting in Hampi, Nainital, Jaisalmer, Dehradun and Manali, among others. Technically, the stock has broken out of a six-week flat base. For the last three days, the volumes were recording above average. Its relative price strength line is above the prior high and showing outperformance compared to the broader market. It is trading above all the key moving averages, and all the long-term and medium-term averages are in an uptrend. The stock is trading 10.33 per cent above the 50 DMA and 35.35 per cent above the 200 DMA. The weekly MACD shows a strong bullish momentum. The RSI is in the bullish zone. The Stochastic RSI has given a fresh, bullish signal. The weekly KST is also in the bullish set-up. As the stock traded a new lifetime high, it cleared all the resistance. The Daryl Guppy multiple averages are also in the uptrend in an ascending order. In short, the stock has registered a bullish breakout. Buy this stock in the ₹600-610 zone. Maintain a stop loss at ₹555. The short-term to medium-term target is at ₹699-710.
 

COCHIN SHIPYARD LIMITED ........ BUY .......... CMP ₹984.80 

BSE Code : 540678
Target 1 ..... ₹1,100
Target 2 .... ₹1,200
Stoploss....₹865 (CLS) 

Cochin Shipyard (CSL) is one of the leading shipbuilding and repair yards in India. It has an infrastructure that combines economy, scale and flexibility and also has ISO 9001 accreditation. The company also has an exclusive area set for offshore construction and future expansion. It offers a wide product range such as tankers, product carriers, bulk carriers, passenger vessels, high bollard pull tugs, and air defence. The company was signed by the Ministry of Defence for repairs and maintenance of the equipment and systems onboard INS Vikrant at a value of ₹488.25 crore. It also signed another ₹313.42 crore order of Rei-Powering of INS Beas. Technically, the stock has broken out of an eight-week flat base and closed at a new lifetime high. It has recorded above-average volume on a breakout. Its relative price strength is at 95, and at a new high, showing an outperformance compared to the broader market. The stock is well-placed above the long-term averages. It is 11.78 per cent above the 50 DMA and 66.51 per cent above the 200 DMA. The weekly MACD has given a fresh bullish signal, and the RSI is in a strong bullish zone. The Elder’s impulse system has formed a strong bullish bar. The Stochastic RSI has given a fresh, bullish signal. As the stock hit a new lifetime high, it cleared all the resistances. The stock also extended 50 per cent of the prior swings. In short, the stock registered a strong bullish breakout. Buy this stock at ₹980-990. Maintain a stop loss at ₹865. The short-term to medium-term target is ₹1,100-1,200. 

*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 April 02, 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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