NIFTY Index Chart Analysis

The domestic equity market's outperformance continued in the last fortnight as well when compared to its global peers. But, the momentum is waning as the consolidation extends for 21 days. Most of the consolidation is limited to just the 650 points range. The consolidation is mostly above the 20 DMA. During this period, it formed two significant bearish patterns on a weekly timeframe, a shooting star and a bearish engulfing.

Despite the formation of two significant bearish patterns on the weekly timeframe at a swing high, the bears have failed to prove their dominance and take any decisive direction. Interestingly, within this 21-day consolidation, we have seen that several gaps have been formed. These erratic price movements are confusing the directional traders. The 10-week moving average acted as support twice in this period, which is currently placed at the level of 17,416.

Currently, the index holds three distribution days. Any increase in the number of distribution days to 5-6 will have serious implications on the bullish trend of the market. The Nifty is shy of sustaining above the sloping trendline resistance drawn from October 2021 lifetime high. For the past six weeks, it has been oscillating around this trendline. At the same time, it is failing to close above 17,801 on a weekly closing basis. This level is nothing but a 23.6 per cent extension level of the prior two major trends.

After declining over 3.3 per cent from its recent high, the index is again bouncing towards the swing high. Two days of sharp decline are followed by a smaller daily range. On Tuesday, it filled the last Friday's opening gap and formed a shooting star kind of a pattern. In any case, if the Nifty closes below the level of 17,166, this will confirm reversal of trend A decline below 17,408 (23.6 per cent retracement level of the current up move) will give initial signs of weakness.

In such a case, the fall will be faster and more impulsive. On the downside, the first target would be placed at the level of 16,983. At the same time, if the index fails to sustain above 18,115, the consolidation may consume more time. This 17,166- 18,115 range has to break on either side for a decisive directional bias. Above 18,115, the Nifty can test the previous high of 18,604 and the second target would be placed at the level of 18,900. For this, global market conditions will play a crucial role and we would need support from FIIs inflows as well. The RSI has formed a negative divergence. To negate this divergence, it has to move above the 65-70 zone. The MACD line has been declining for the past 20 days and sustaining below the signal line. The RS momentum is below 100 and not showing any significant strength in the trend. The weekly and daily KST are declining which is also not a good sign. Except for banks, financial services and cement, most of the other sectors are not in a good shape. In fact, Bank Nifty hit a new lifetime high last week. 

All the other sectors are losing momentum. There are eight sectors that are lagging or in the weakening quadrat. This means the market is lacking the leading sectors. Only 13 of Nifty 50 stocks are in the leading quadrant. The Nifty IT index lost over 7 per cent in the previous week. The advance-decline ratio is also negative. The US Federal Reserve, Bank of England and Bank of Japan are meeting in the coming days to act on rates. It is expected that the US Federal Reserve may increase the interest rates by over 75 basis points. 

This measure may result into a volatility for a day or two as many have factored in a rate hike of 75 basis point from the US Federal Reserve. Even the RBI is likely to raise the interest rates soon after its global peers. This overhang of rate hike cycle might keep the lid on the upside. Meanwhile, the broader market has become stock-specific and limited to pockets. Trading in indices may not give fruitful results as long as they trade in a defined range. Focus on stocks with higher relative strength. There are many stocks coming out of Stage 1 bases or near the breakout. Watch these stocks closely for entry points. If the market declines, these high relative strength stocks may relatively outperform.

STOCK RECOMMENDATIONS

CG POWER AND INDUSTRIAL SOLUTIONS LTD .......... BUY .......... CMP ₹254.10

BSE Code : 500093
Target 1 : ₹304
Target 2 : ₹314
Stoploss : ₹235(CLS)

CG Power and Industrial Solutions is an engineering conglomerate with a diverse portfolio of products, solutions and services. It was established in 1937 and is a pioneer and the leader in the application of electrical energy. It has a global footprint with manufacturing facilities in Asia, Europe and North America. It has a diverse portfolio ranging from transformers, switchgear, circuit breakers, HT and LT motors, drivers, and power automation products. 

It also takes up the turnkey solutions in all these areas. The portfolio segments are industrial, power, and railways. Technically, the stock has broken out of a five-week cup pattern with a higher volume. It closed at a new lifetime high. The relative strength line is at a new high. The price is moving in a staircase manner and trading above all key moving averages. Currently, it is 13.3 per cent above the 50 DMA and 11 per cent above the 20 DMA. 

All the short and long-term averages are in an uptrend. The daily and weekly RSI is in a strong bullish zone. The MACD is showing bullish momentum. The Elder impulse system has formed strong bullish bars. The KST has given a fresh buy signal. It cleared the Anchored VWAP resistance too. In short, the stock has registered a bullish breakout. A move above ₹255 is positive, and it can test ₹304 in the short-medium term. Maintain a stop loss at ₹235. 

GRAVITA INDIA LTD. ........... BUY .......... CMP ₹332.15

BSE Code : 533282
Target 1 : ₹400
Target 2 : ₹432
Stoploss : ₹305 (CLS)

Gravita India is one of the largest lead producers in the country. It is also engaged in e-waste, lithium, rubber, copper and paper recycling. It has a global spread in 35 countries in Asia, Africa, and North America. It recycled 130,000 MT and delivered. In four recycling verticals, it has 12 recycling plants. It has in-house lead acid battery recycling technology. The company has executed more than 50 turnkey projects globally. Technically, the stock has been forming a cup and handle pattern for the past 32 weeks. It has been trading in a tight range for the past five weeks. Its relative strength is near high and trading near the pivot level. On a daily timeframe, the price forms a symmetrical triangle. It is trading 10 per cent above the 50 DMA and 9 per cent above the 200 DMA.

The RSI is in a squeeze and bullish zone. The weekly MACD shows a bullish momentum. The Elder impulse system has formed four successive bullish bars. The stock is above the Anchored VWAP resistance. In short, A move above ₹338 is positive, and it can test ₹400 in the short term and ₹432 in the medium term. Maintain a stop loss at ₹305.

*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 Sept. 20, 2022)