NIFTY Index Chart Analysis

The Nifty registered one of the strongest moves in the previous week during the current downtrend. It recorded a 670 points rally, which was the biggest in the last 17 weeks. With the closing above the 20-week average and 200 DEMA, the sentiments turned buoyant. It also inched up near the prior swing high. Like earlier upswings or counter trends, the index has registered the three most bullish weekly candles. After taking support at 100 WMA for two weeks, the index rallied over 10 per cent, which was approximately 1,568 points, in just five weeks. It also took a channel line support, drawn from its 2019 high and 2020 low. 

Importantly, some bear market corrections ended in eight months. Since it is eight months from the top of October 2020, the index respected this history. Meanwhile, several other corrections ended in the 13 and 21 months. Interestingly, these are the Fibonacci numbers. With these positive technical developments, the overall market sentiment was very bullish till the last weekend. Generally, any sharp move attracts counter-trend consolidation where it can retrace at least 38.2 per cent. At the same time, the 10 percent rally was with a low volume and created suspicion on bulls’ strength. 

These suspicions have almost become a reality over the last two days. There were exhaustion signs at the weekend. Importantly, the Nifty’s RRG relative strength is still below 100 and receding. This means that the index is underperforming the broader market. A move above the Bollinger bands for three days also signalled that the rally was over-extended. The previous two days of bearish candles got confirmations for their downside implications. The sell-of on Tuesday was triggered as two event risks were lined up in the next couple of days. 

The Federal Reserve’s meeting outcome on Wednesday which is then followed by the monthly derivative expiry on Thursday. For the current downtrend to end and enter into an uptrend, it requires a lot of additional technical developments. For starters it has to close above the 200 DMA and form at least two higher highs and higher lows. At the same time, a base has to form to get a solid uptrend. This base could be a double bottom or an inverted head and shoulders or a triangle pattern. On a rare occasion, the indices form rectangle bases. The bullish camp would love to see these developments play out.

But, before that, the market will experience increased volatility. The rise in VIX at the beginning of the new week has given early signs of elevated volatility. During the previous week, the Nifty has retraced 38.2 per cent of the prior downtrend, which was placed at 16,490, and closed above the 20-week moving average (16,580). But, in the last two days the index declined below these levels and registered a failed breakout. The weekly RSI is below 50 and in a neutral zone. Though the MACD line has moved above the signal line, it has to sustain on a weekly basis. For now, the price action is just a retracement of a trend. 

For a bearish confirmation, it has to decline below the 20 DMA of 16,156 and 38.2 per cent retracement of a current upswing at 16,152. In any case, if it closes below this level, it is likely to test the levels on the downside. For an upside, the Nifty needs to move above the previous week’s high of 16,752. Above this, it can test the 200 DMA of 17,039. The 40-week moving average is placed at 16,962. For a stronger uptrend, the RRG relative strength and RS momentum have to improve above 100. At the same time, many sectors have to lead the market rally. For now, only a few sectors are in the leading quadrant and losing their momentum. Even a few Nifty 50 stocks are in the leading quadrant. Overall, in the coming weeks, sector rotation will play a major role and in the near-term the US’ Federal Reserve outcome and monthly derivative expiry would dictate the movement of the markets.

STOCK RECOMMENDATIONS

PAGE INDUSTRIES LTD. ................. BUY ............... CMP ₹46,137.15

BSE Code : 532827
Target 1 .... ₹50,000 
Target 2 ..... ₹54,000 
Stoploss....₹42,800(CLS)

Page Industries is the exclusive licensee of JOCKEY International Inc. (USA) for manufacture, distribution and marketing of the JOCKEY® brand in India, Sri Lanka, Bangladesh, Nepal, Oman, Qatar, Maldives, Bhutan and the UAE. Page Industries is also the exclusive licensee of Speedo International Ltd. for the manufacture, marketing and distribution of the Speedo brand in India. JOCKEY is the company’s flagship brand and a market leader in the premium innerwear and leisure wear category. The stock has rallied over 22 per cent from the swing lows of June 2022 and as a result it has reached near its all-time high levels and has also reached a pivot point. As the stock is trading near the all-time high, it is above all the short-term and long-term moving averages. The stock is meeting Mark Minervini’s trend template. It is trading above 40, 30 and 10-week averages and all of them are trending up. At the same time, there is a desired sequence. Along with this, the stock is above its 50-week average and 20-period RSI which is above the 60 level and is in a super bullish zone. It also meets the Guppy Multiple Moving Average (GMMA) set up by Daryl Guppy. This structure indicates that the stock is in a clear uptrend. The stock also meets a majority of the CANSLIM characters of investing. Its EPS strength is at 82 which is a good score, indicating consistency in earnings, a RS rating of 73 which is fair and indicates the recent price performance. Interestingly, the stock is also meeting Warren Buffet’s rules of investing. In short, the stock is poised for a bullish breakout. A move above ₹46,070 is positive for the stock and it has the potential to test the level of ₹50,000 followed by ₹54,000 in the medium to long term. Maintain a stop loss of ₹42,800. 

COAL INDIA LTD. .......................... BUY ............................ CMP ₹202.20

BSE Code : 533278
Target 1 ..... ₹230 
Target 2 .... ₹240 
Stoploss....₹188 (CLS)

Coal India Limited (CIL), the state-owned coal mining corporate, came into being in November 1975. With a modest production of 79 million tonnes (MTs) in the year of its inception, CIL today is the single largest coal producer in the world and one of the largest corporate employer with manpower of 248,550 as on April 1, 2022. CIL functions through its subsidiaries in 84 mining areas spread over eight states of India. It had 318 mines as of April 1, 2022 of which 141 are underground, 158 opencast and 19 mixed mines. The stock recently witnessed a breakout of a triangular pattern on the daily chart which was formed over a span of the past three months. After the breakout, the stock re-tested the pattern and started to move higher and on Tuesday it outperformed the frontline gauge as it managed to close in the green while the frontline gauge was in deep red. On the daily chart, the stock is trading above its 20, 50, 100 and 200 DMA. Interestingly, all these moving averages are trending higher. The stock also meets majority of the CANSLIM characters of investing. The stock has an EPS rank of 90 which is great score indicating consistency in earnings, a RS rating of 75 which is fair and indicates recent strong performance. Buyer demand is at B+ which is evident from the recent demand for the stock. Its group rank of 21 indicates that it belongs to a strong industry group and a master score of B is close to being the best. The stock on the weekly chart is trading around the pivot point. Hence, buy this stock with a stop loss of ₹188 on a closing basis for a target of ₹230 followed by ₹240 in the long term.

(Closing price as of July 26, 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.