NIFTY Index Chart Analysis

Over the fortnight, the Nifty continued its northward journey without any substantial dip. The current upswing is the longest one in the major downtrend. The index has retraced more than 62 per cent of the October-June downtrend. Further, the current swing is the longest in terms of the number of days as it took 35 days and the index has rallied 15.36 per cent from the June 17 low. The prior swing was 18 days old with a 15.59 per cent rally. The first counter rally was of 20 days and it rallied 11.65 per cent. As the index is moving in a broadening, left-angled triangle formation, the swing is to be lengthier and consume more time.

The downward sloping trend line resistance, connected to the three major prior swings, is placed around the zone of 17,700-17,730. This zone may act as the strongest possible resistance for now. And the prior swing high is placed at the level of 18,115. Unless these resistances are cleared, we cannot assume that the trend has reversed on the upside. Though the index is trading above the 200 DMA, its slope is still in the downtrend. 

This long-term trend indicator needs to enter into the uptrend for an uptrend confirmation. Now the question is: will the Nifty be able to cross this trend line resistance and the prior high?

The Nifty is trading 4.72 per cent above the 20 DMA and 7.68 per cent above the 50 DMA. The Nifty also retraced over 78.2 per cent of the prior swing. The weekly MACD line closed above the zero line with increased momentum. The RSI is above the prior swing high and near the strong bullish zone. On a weekly chart, the trend is strongly bullish. But, on a daily chart, the trends look overextended as the major indicator has reached an extremely overbought condition. The last week’s price action with increased volatility indicates the exhaustion of the trend.

The positive aspect of the current trend is that the cash volumes have picked up since July 28. This may be because of renewed buying interest from the FIIs. But the prior countertrend rallies are with low volume. Generally, these kinds of rallies are not trustworthy. For the last nine days, the Nifty not closed below the prior day’s low, which is another positive. The broader market indices, Nifty Mid-Cap and Small-Cap, outperformed last week. With this, the advance-decline ratio has improved to 2:1. The IT index’s 2.62 per cent rally after breaking out of the double bottom pattern has supported the broader market’s gain. 

The IT index has entered into the improving quadrant and with increased relative momentum. Overall, the sector rotation is happening perfectly well in the market. Interestingly, the FMCG, automotive and BFSI sectors are losing relative momentum within the leading quadrant. Even after a 15.6 per cent rally, only 13 stocks in the Nifty 50 are in the leading quadrant. For a bull market, as many as possible stocks must be in the leading quadrant, with high relative momentum. The Dow index is just trading above the 38.2 per cent retracement level. 

During last week, the S and P 500 index formed a Doji candle. The Dollar index has been consolidating above 106 for the last three weeks. Any rally towards the previous high of 109.2 will result in an inverse effect on the equity markets. The India market has outperformed its global peers in the last two months. In the absence of any significant weakness, there are no chances to take a bearish view. Only a close below the prior bar low of 17,359 will give the first signs of weakness. For a reversal, the Nifty has to close decisively below 17,161. The 200 DMA and the 23.6 per cent retracement levels are at the same level at 16,998 and 16,990. A close below will lead to testing the near June low. On the upside, the zone of 17,625-17,730 will pose stiff resistance. Stay light in position and the profit booking can come in around these levels. It is strongly recommended to protect the profit by trailing stop losses.

STOCK RECOMMENDATIONS

TIMKEN INDIA LTD. ............... BUY .................. CMP ₹2,980.30

BSE Code : 522113
Target 1 : ₹3,300 
Target 2 : ₹3,490 
Stoploss : ₹2,700(CLS)

Timken India Limited (TIL) was incorporated in 1987 as Tata Timken Limited (TTL), a joint venture between Tata Iron and Steel Company (TISCO) and The Timken Company, a world leader in bearings. Now, Timken India Limited, a Timken Company subsidiary, manufactures bearings. It has state-of-the-art manufacturing plants in Jamshedpur and Bharuch to serve the domestic bearing market. 

Technically, the stock broke out of a six-week cup pattern two weeks ago with a higher volume. After taking one week of consolidation, the stock has moved higher again. It is trading 43.45 per cent above the 50 DMA and 26.95 per cent above the 20 DMA. All the short and long-term averages are in an uptrend. The RRG relative strength and momentum are very strong above the 100 mark and show relative outperformance compared to the broader market. It meets all the CANSLIM parameters of investing. The stock has an EPS rank of 97, which is a great score indicating consistency in earnings, and an RS rating of 91, which is great too, indicating outperformance as compared to other stocks. 

The buyer demand at A+, which is evident from the recent demand for the stock, and the Group Rank of 6 indicates it belongs to a strong industry group of machinery tools and a master score of A is the best. Institutional holding has gone up in the last reported quarter and that is a positive sign. Overall, the stock has great fundamentals and technical strength to stay in momentum. In short, the stock is technically very strong and trading at the pivot. A move above ₹2,989 is positive, and it can test ₹3,300 in the short term. In the medium-term, the stock can test ₹3,490. Maintain a stop loss of ₹2,700 on a closing basis. 

JK PAPER LTD. ............................ BUY ............................ CMP ₹389.45

BSE Code : 532162
Target 1 : ₹421
Target 2 : ₹468
Stoploss : ₹450 (CLS)

JK Paper provides paper solutions and produces social farm forestry. Its paper-based solutions are 100 per cent bio-degradable and recyclable. It is one of the leading players in office paper, writing printing papers, coated papers and high-end packaging boards. It has three integrated pulp and paper mills in Rayagada, Songarh and Kagaznagar. The company has 761,000 TPA capacity per annum. Technically, the stock has broken out of 14-week consolidation. For the last two weeks, it has been registering an above-average volume. As the stock is trading above the prior pivot, the relative price strength (RS) rating is as high as 85. The stock is trading above all the key moving averages. It is 14.83 per cent above the 20 DMA and 21.74 per cent above the 50 DMA. The weekly MACD has given a fresh buy signal. The RSI is in a strong bullish zone. The ADX (22.63) shows that the trend strength is reasonably good. The RRG relative strength and momentum are above 100 and show an outperformance compared to the broader market. All the indicators show a bullish bias. In short, the stock has broken out of a bullish pattern. A move above ₹389 is positive and can test ₹421 in the short term. The medium-term target is ₹450. Keep a stop loss of ₹368 on a closing basis.

(Closing price as of Aug. 08, 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.