NIFTY Index Chart Analysis

As was expected, the Nifty tested the zone of 18,780- 18,880. Since then, the index has entered into a counter trend. Nifty corrected by 2.53 per cent from the lifetime high of 18,887. It exactly tested and traded around the 20 DMA. However, it formed a bearish engulfing pattern around the 20 DMA. As it formed after a decent correction, we can expect some more correction because we consider it as a topping formation and a continuation pattern. Since it closed just flat on Monday, the bearish engulfing is still a valid pattern. The index closed below the rising trend line support on Wednesday i.e. December 7 and it sustained below it. 

It also traded below the previous lifetime high of 18,604 for the last four days. At the same time, it almost tested the 23.6 per cent retracement level of the prior upswing from the September low. Interestingly, the November 16 high and November 28 low are in close proximity of each other. On the weekly chart, it formed an inside bar as traded in the previous week’s range. The pattern resembles a bearish belt hold, but it’s not a perfect textbook bearish belt hold pattern. It snapped two weeks of bullish bias and formed a bearish candle. Up to 23.6 per cent of 18,382 and the previous week’s low of 18,365 will act as crucial support for the next week. On Monday, it violated this important support on intraday basis as it tested the level of 18,345. A decisive decline below this level will take us towards the zone of 18,070 -18,114 where the next strong support is placed, which is the 38.2 per cent retracement level and the previous tight base breakout level. Currently, the Nifty is holding two distribution days. Any increase of distribution days to five and a decline below the prior swing low of 18,114 will be a clear weak signal.

This is also near the 10-week average level of 18,152. If it declines below the level 18,114, it will breach its swing low. On the upside, the Nifty has to sustain above the zone of 18,605-18,665, to continue its uptrend, and it should not form a lower high at any cost. At the same time, it has to negate the bearish engulfing pattern’s implications. In such a case, the index will test the zone of 19,421-19,653 as stated in the previous column. The daily RSI has declined below the prior swing low and shifted its range, which is not a good sign. It also declined below the channel support line and faced resistance at 61.60. The negative divergence is developing now in the weekly chart. 

The daily channel support level is placed in the zone of 40. Historically, the RSI has taken support at the 40 zone several times. Only in case of a decline below 40 will the trend become bearish. Even the MACD histogram shows an increased bearish momentum. The negative directional line - DMI is above the +DMI, and the trend strength indicator ADX is declining. These signs are nothing, but the bulls are losing their grip on the trend. However, the shortterm trend needs to extend further below the zone of 18,030-18,114 for an intermediate downtrend. The broader market is not so encouraging as the Mid-Cap and Small-Cap declined more than the benchmark. The breadth is also not so great.

The FII fund flows were negative in the current month by ₹5,796 crore. The Dollar index is bouncing from the crucial support. The dollar-rupee is rising again and has broken the double bottom pattern. The minimum target is about ₹84 per dollar. These negative factors may influence the market in the coming days. Even the Dow and S and P 500 declined below the 20 DMA. These two major indices formed parallel lows. A decline below the previous low will be negative for the markets. In a nutshell, the market is at an influx point. If the Nifty fails to close above 18,665 in the next weekly close, we may see 18,000 levels. For now, it is better to have a neutral stance and cut down the highly leveraged positions. 

STOCK RECOMMENDATIONS

RAMKRISHNA FORGINGS LTD. ................... BUY ............... CMP ₹244.05
BSE Code : 532527
Target 1 .... ₹275 
Target 2 ..... ₹290 
Stoploss....₹220 (CLS)

The company is a leading manufacturer and supplier of forgings to major automobile companies, railways, farm equipment, bearing, oil and gas, power and construction sectors. It supplies critical safety items for screw coupling, bolster suspension, side frame keys and draw gear assembly for railway coaches and wagons. Its laboratory has received NABL accreditation last year. The company recently initiated a capex plan and spent ₹153 crore. This capex will add a top-line of ₹5,000 crore. It has also entered into the EV segment and is implementing various projects. Ramkrishna Forgings has also established a 4 MW solar plant at Jamshedpur. Technically, the stock is trading at 61-week, Stage 2 cup and handle pattern’s pivot level. It is also near its lifetime high. Its relative strength line is at a new high, showing outperformance as compared to the broader market. The stock is trading above all the key moving averages. It is 8.46 per cent above the 50 DMA and 6.86 per cent above the 20 DMA. The RSI is in a strong bullish zone on daily and weekly charts. The MACD has been bullish too. It cleared the anchored VWAP resistance. The KST and the TSI indicators are also giving bullish signals. The Elder impulse system has formed strong bullish bars. The stock is entering the leading quadrant with high momentum and relative strength. In a nutshell, the stock is about to register a solid breakout. Buy this stock above ₹245. Maintain a stop loss at ₹220. The short-term target is at ₹275 and it can test the level of ₹290 in the medium term. 

HDFC BANK LTD. ............................ BUY ......................... CMP ₹1,648.35
BSE Code : 500180
Target 1 ..... ₹1,715 
Target 2 .... ₹1,755 
Stoploss....₹1,590 (CLS)

This is India’s leading private sector bank with over 6,500 branches and 21,000 banking outlets. Its ATM network is at 18,868. It has an 11.2 per cent market share in advances and a 9.5 per cent share in deposits. The bank has a base of over 70 million customers. During the last quarter, its gross advances increased by 20.7 per cent and the deposits were up by 16.8 per cent. The net interest margin is at 4.2 per cent. Technically, the stock has broken out of a tight flat base on the daily chart and a 35-week cup and handle pattern on the weekly chart. For the last two days, volumes recorded were above average. It is trading above all the key moving averages. It is currently 1.93 per cent above the 20 DMA and 7.70 per cent above the 50 DMA. The 200 DMA is also in an uptrend. The stock has formed four consecutive bullish bars in the Elder impulse system. Its relative strength line is above the prior highs and improving. Currently, it is at 61, which is fair. The Mansfield relative strength indicator is also above zero, and it is outperforming compared to the broader market index CNX 500. The RSI is in a strong bullish zone. It took support at 60 during the tight range consolidation. The anchored VWAP acted as strong support in the recent uptrend and is currently at ₹1,618. It is also meeting the CANSLIM characteristics of investing. Institutional participation has increased by 1.04 per cent in the stock. In a nutshell, the stock has broken out of a tight flat base of Stage 1 and is in the ideal buying range. Buy this stock above ₹1,642 and maintain a stop loss at ₹1,590. The short-term target is ₹1,715. The medium-term target is ₹1,755.

*LEGEND:  EMA - Exponential Moving Average. MACD - Moving Average Convergence Divergence  RMI - Relative Momentum Index  ROC - Rate of Change  RSI - Relative Strength Index

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.

(Closing price as of Dec, 13, 2022)