NIFTY Index Chart Analysis

After a decline of 1,348 points in the last 12 trading sessions, Nifty showed a significant single-day recovery last Friday. It recovered most of the weekly losses and formed a long lower shadow candle on the weekly chart. But the strong recovery failed to test the gap area of September 26. The most important technical development is that the Nifty reclaimed its 200 DMA after spending two days below it in the last five trading sessions. This long-term average acted as support and resistance for two days and finally on the final day of the trading session it reclaimed it. Though it moved above the 200 DMA, the index is still below the short-term and medium-term averages.

Nifty normally ends with a swing in eight days. The current swing ended in nine days. The index also came out near an oversold condition. Nifty tested the sloping trendline resistance seven times in the last nine weeks. It failed to cross or sustain above it. Currently, it is now 3 percent below the resistance line. Friday’s recovery tested the double top breakout level and closed below it. Last week’s closing was not only a weekly closing but a monthly and quarterly closing as well. For the third consecutive quarter, Nifty has made a lower high but it failed to form a lower low. This means that one a quarterly basis it formed an inside bar.

As long as the 15,183-18,114 range is protected, there may be no major change in trend. On a monthly chart, the index has formed a shooting star kind of a bearish candle and an outside candle. There are no divergences seen in the long-term charts. In any case, the monthly RSI may close below the 55 zone, which will be a big negative for the market. As mentioned earlier, the monthly MACD and KST lines have been declining for the last one year. The bearish momentum has clearly picked up. Before discussing the levels to be watched in the near term, let us also look at the global markets.

The Dow and S and P 500 indices formed another lower low last week. They declined below the monthly support. Even the Dow Transportation index made a new low. As per the Dow theory, all these benchmark indices gave fresh,strong sell signals. Since the August 16 high, the Dow declined by 16.23 per cent and from the November 2021 high it fell by 22.3 per cent. The S and P 500 declined by 25.65 per cent from its January high. These indices made new lows. The Nasdaq Composite index declined by 34.79 per cent since its all-time high whereas our benchmark index, Nifty, is just 8.12 per cent below its all-time high.

Importantly, the Dow is 2.88 per cent below the pre-pandemic high. In contrast, Nifty is 37.51 per cent above the pre-pandemic high of 12,430. The other global indices also fell below the pre-pandemic highs. Historically, October is more volatile for the equities. And significantly, the world’s top investment bank, Credit Suisse, is looming large for big trouble and is at a “critical moment” as stated by its CEO. This may ring danger bells in global markets. The Dollar index (DXY) is at a 20-year high at above the 112 mark, which is yet another setback for the market. 

The USD is almost at `82, which is negative for imports and the balance of payments. Forex reserves recorded the steepest decline in six months to USD 537.52 billion. With the above scenarios, our markets may be headed for a correction to a reasonable level. The outperformance may not continue further. As long as Nifty trades below 17,489, the market structure is weak. There is a higher probability of testing 16,300 in the near-medium term, which is a 61.8 per cent retracement level of the prior uptrend. Hence, it’s important to be selective and not take leverage positions. 

SUN PHARMACEUTICAL INDUSTRIES LTD. ............ BUY ............ CMP ₹949.00

BSE Code : 524715
Target 1 : ₹1015
Target 2 : ₹1065
Stoploss : ₹894(CLS)

The company is the fourth-largest speciality generic pharmaceutical company in the world with global revenues of over USD 4.5 billion. Supported by more than 40 manufacturing facilities, it provides high-quality medicines to more than 100 countries across the globe. It manufactures and markets a large basket of pharmaceutical formulations covering a broad spectrum of chronic and acute therapies. This includes generics, branded generics, speciality, complex or difficult-tomake technology-intensive products, over-the-counter (OTC), anti-retrovirals (ARVs), active pharmaceutical ingredients (APIs) and intermediates. The stock closed at the prior pivot of Stage 1B, 21-week cup and handle. The 200 DMA has been acting as support since June 2020 and the price is moving in a staircase manner. Currently, the stock is clearly above all the short-term and long-term averages. The stock is trading 5 per cent above the 50 DMA and 8 per cent above the 200 DMA. For the last two weeks, the volumes have been recording above average. The relative strength line is almost at a new high. The MACD has given a fresh buy signal. The RSI is near the strong bullish zone. The RRG RS and momentum are strongly above the 100 zone. The KST and TSI have been in a strong bullish set-up. It has also cleared the Anchored VWAP resistance. In short, the stock is on the verge of a breakout. A move above ₹952 is positive and it can test ₹1,015-1,065 in the short-term to medium-term. Maintain stop loss at ₹894.

GRANULES INDIA LTD. ........... BUY ........... CMP ₹345.25

BSE Code : 532482
Target 1 : ₹389
Target 2 :  ₹420
Stoploss : ₹318 (CLS)

This is a vertically integrated, high-growth pharmaceutical company. This 38-year-old company has a record of proven performance and increasing presence across the world. Headquartered in Hyderabad, Granules India offers collaborative and strategic partnerships to global pharmaceutical leaders by producing the best quality API, PFI and FD through manufacturing excellence, process innovation and regulatory expertise. Technically, the stock closed above the prior minor highs and at the sloping trendline resistance of a sloping channel. It also broke out of an inverted head and shoulders pattern. It is above all the key moving averages. For the last two weeks, the volumes have been above average. Currently, it is 11 per cent above the 50 DMA and 15 per cent above the 200 DMA. The weekly MACD is above the zero line and the RSI has entered a strong bullish zone. The +DMI is above the -DMI and this is a positive sign. The RRG RS is at 104 and this is a sign of strong relative performance. The RS line is near the new high. The Elder impulse system has formed a strong bullish bar. The KST has formed higher lows and given a bullish signal. In short, the stock has registered a bullish breakout. A move above ₹350 is positive and it can test ₹389 in the short term and ₹420 in the medium term. Maintain stop loss at ₹318.

*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. 30, 2022)