NIFTY Index Chart Analysis

Nifty, the benchmark index, moved in line with our expectations in the last fortnight. It has broken the 11-day base with a huge positive gap at the beginning of the week and has now retraced 38.2 per cent of the prior trend. Moreover, it has filled the opening downside gap of May 6.That said, the price action of May 31 has warned the bulls once again amid sharp sell-off in the last leg of the trading session. On Tuesday, the index formed a Doji candle which shows not only indecisiveness but exhaustion as well. After back-to-back gap-up openings, the Nifty formed a Doji on a negative opening. It also formed an inside bar.

The index had rallied 791 points from the low of May 26. About 50 per cent of the 664-point base breakout target was met on Monday. The recent price action has created a lot of hope for a bullish reversal as it rallied sharply from the base.

The 15,735-16,404 range has broken on the upside and with this it has ended the counter-trend consoli dation. As discussed earlier, the bear market rallies are seductive in nature. As per David Keller, a finance expert, “Counter-trend rallies in bear markets can usually be described as sudden, severe and seductive.” 

These rallies happen suddenly. The sudden, surprising rallies are punctuated by hammer candles, engulfing, the base breakout and the other bullish patterns. These counter-trends generally do not exceed 50-61.8 per cent retracements of the prior swing. The Nifty failed to sustain above the 38.2 per cent retracement level for the second day and we can assume that the counter-trend has come to a halt at 16,695. The upside move is likely to resume only in case of a close above the level of 16,695 and with a follow-through day.

The base looks like an ascending triangle on a lower timeframe. Generally, this bullish pattern breakout is sharper and short-lived. The pattern target is at 17,073, which is almost 61.8 per cent retracement. The index also sustained above the 20-day moving average for the third consecutive day – the first time after April 13. As mentioned earlier, whenever the index moves beyond 6.4 per cent from the 20 DMA, it generally retraces back to the average. Currently, it is 2.18 per cent above the 20 DMA. As the Bollinger bands started narrowing down with the price near to the upper Bollinger band, the upside potential looks very limited.

The 50 DMA is 1.93 per cent away at 16,910. The 200 DMA is 3.9 per cent away at 17,265. If the Nifty is able to cross the 50 DMA, the counter-trend rally can test the 200 DMA. The daily RSI is currently at 52.45. A move above 55 will assure the bullish confirmation of the index. It has come out of the oversold zone during the 11-day consolidation. The MACD line is also turning back from the oversold zone and crossing the signal line. Generally, if the price moves above the 20 DMA, the +DMI crosses the -DMI. But it has not happened this time.

It crossed on Monday but declined again. Even after the big breakout, the ADX has been declining, showing weaker trend strength. The recent bounce is common in the nature of a counter-trend. Trust the bounce only above the 50 DMA or above 61.8 per cent retracement levels. Otherwise, all the counter-trend rallies are continuation patterns. The downtrend, sooner or later, would resume once the counter-trend ends. As stated above, sudden and striking moves or deceiving bounces are common in such a bear market. Remember that the market is in a downtrend and any aggressive bullish bias will add to the risk. Be defensive and focus on only short-term bets. Pay attention to stocks which have given above expected results and exhibit good relative performance technically.

STOCK RECOMMENDATIONS

MAHINDRA AND MAHINDRA LIMITED. ........... BUY ....... CMP ₹1,033.90

BSE Code : 500520
Target 1 : ₹ 1,140
Target 2 : ₹ 1,210
Stoploss : ₹900 (CLS)

Mahindra and Mahindra Limited is one of India’s leading automotive companies. Over seven decades, the company has spread across over 100 countries. The Mahindra Group has expanded into 22 key industries. Mahindra and Mahindra is the flagship company, engaged in mobility and farm products. Its products range from SUVs, pickups, commercial vehicles, tractors to electric vehicles, two-wheelers and construction equipment. Technically, the stock is trading at a new high. It has broken the 28-week consolidation and closed 6 per cent above the pivot. As it is trading at a new high, the stock is above all key moving averages. It is 18 per cent above the 50 DMA and 22.5 per cent above the 200 DMA. Its relative price strength is at a new high. For the last two weeks, the volume recorded has been above average. The weekly RSI is at prior high and in a strong bullish zone. The positive directional indicator +DMI is at a new high and rising ADX shows solid trend strength. In the last four weeks, the stock has rallied nearly 21 per cent and formed strong bullish candles. The TEMA acts as strong support. The Elder impulse system has formed a series of bullish candles. The TSI and KST indicators have given a new buy signal. As the stock has broken out of consolidation with a strong volume, it is in the buy zone. Buy this stock between ₹980-1,035 with a stop loss of ₹900. The short-term target is placed at ₹1,140. Above this, continue with a trailing stop loss for a target of ₹1,210.

RAYMOND LIMITED ........ BUY ............. CMP ₹983.35

BSE Code : 500330
Target 1 : ₹ 1,155
Target 2 : ₹1,200
Stoploss : ₹900 (CLS)

Incorporated in 1925, Raymond is a diversified group with majority business interests in textile and apparel sectors as well as a presence across diverse segments such as FMCG, realty, engineering and prophylactics in the domestic and global markets. Raymond has strong ‘fibre to fabric’ manufacturing capabilities and is a textile powerhouse with state-ofthe-art modern infrastructure. Technically, the stock has broken out of a seven-week cup pattern. For the last three weeks, the stock has recorded above average volumes. Its relative price strength is at a new high. The stock’s lifetime high is just 14 per cent away from the current market price. After the southern Doji candle four weeks ago, the stock is forming strong bullish candles and closed at a four-year high. The stock is trading above all the key moving averages. It is 17 per cent above the 50 DMA and 54 per cent above the 200 DMA. The weekly MACD has given a fresh buy signal. The Elder impulse system has formed three consecutive bullish bars. The weekly RSI is in a strong bullish zone. The ADX of 41.33 shows solid strength in the stock. The KST and TST indicators are in a bullish set-up. In short, the stock has broken the bullish pattern and closed at a new pivot. Buy this stock between ₹964-989. Maintain a stop loss at ₹900. The short-term target is ₹1,155. Above this level it can test ₹1,200 in the medium term.

(Closing price as of May 31, 2022)

*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.