NIFTY Index Chart Analysis

The Nifty registered one of the biggest and sharpest falls last week. It has broken the 26-week rising wedge pattern with added distribution days. The result of the breakout, which aided Nifty to scale a fresh lifetime high, was that it failed! The Nifty holds six distribution days and is trading below the 50 DMA. It closed below the previous support and resistance and also formed a lower low. It tested and closed below 100 DMA last Friday, which acted as support on September 30 and filled the October 31 gap area.

These are the characteristics of a downtrend. After the head and shoulder breakdown on December 16, it retested the neckline for the following three days. The pattern target was met in just six days, which is almost one-fourth of the pattern formation time. Importantly, the bigger pattern of the rising wedge, formed from the June lows, has a scary target (15,400) of almost near the June low (15,191) itself. 

In a bear case scenario, this target can be achieved in less than 50 per cent of the pattern formation time over 10-13 weeks. Importantly, for the last couple of weeks barring December 27 (Tuesday), Nifty has failed to close above the prior day’s high. As it is already trading below the short and medium-term moving averages, Nifty has had to close above these moving averages to regain strength. The last two days of bounce formed higher highs but this could be seen as retracement of the downswing. When the index trended higher from the low of September 30, several indecisive candles formed and the daily ranges were very small.

But, the current decline is seen on the back of sizeable daily bearish candles along with increase in the daily ranges, which clearly shows the dominance of bears in the market. The index is now 4.99 per cent above the 200 DMA and 4.49 per cent above the 150 DMA. These are the strong long-term supports for now. Since June, there have been three downswings and two upswings. Each downswing is 13 and 21 days long, and these numbers are Fibonacci numbers. Importantly, the RSI is at a historical support zone of 28-32. Nifty declined 5.87 per cent from the recent top. The previous decline was 7.45 per cent and it was 9.6 per cent in June. 

So let’s watch for the current downswing that will honour the time or the price target. Here a close above the 50 DMA (18,180) is crucial for the market to change its status to ‘rally attempt. At the same time, it must not move below Monday's low of 17,774. For the uptrend to resume, the index has to close above the level of 18,696, which is a swing high or a recent lower top. As mentioned earlier, the downside targets are open for 17,565-580 if the index fails to move above 18,696. A few days back when Nifty crossed 18,605 and sustained on a weekly closing basis, our forecast target was 19,250. 

Considering that the breakout has turned out to be a failed one, the view has been changed to ‘cautious’. Many of the sectors, including banks, which led the recent market rally, are losing momentum and relative strength. Even the Nifty 50 stocks lost their momentum and relative strength. A few pharmaceutical stocks were resilient in the fall but needed more relative strength. We are cautious about the long-only portfolio. Going forward, the market would turn strongly bearish if the Nifty violates the 150 DMA and 200 DMA support zone of 17,266-17,185 decisively. Since the December 1, when Nifty hit a new lifetime high, the FIIs’ flow has turned negative. 

The USD-INR hit almost a new high. On October 19, USD-INR closed at ₹83.008 and on Thursday the close was ₹82.96. It may not decline below ₹82.10. As stated earlier, the target is ₹84 in the near term. The Dow index also fell by 5.7 per cent from its recent high. These are factors that may influence the markets. On a monthly chart, Nifty is forming a bearish engulfing candle, which is negative for the trend. In the last 15 years, five bearish engulfing patterns have formed at the market tops. If the market honours the basic principle of history repeating itself, the level of 18,887 is intermediate for now. Nifty may trade broadly in the range of 17,565-18,200 with increased volatility for a few more days. Keep this position under check and apply the principles of prudent risk management.
 

STOCK RECOMMENDATIONS

USHA MARTIN LIMITED ......................... BUY .................... CMP ₹177.60
BSE Code : 517146
Target 1 .... ₹206
Target 2 ..... ₹215
Stoploss....₹151 (CLS)

Usha Martin is a leading global manufacturer of steel wire ropes and is also engaged in manufacturing wires, LRPC strands, prestressing machines and accessories and optical fibre cables. Usha Martin’s wire rope manufacturing facilities in Ranchi, Hoshiarpur, Dubai, Bangkok and the UK produce the widest range of wire ropes that find application in various industries worldwide. The company’s global research and development centre, located in Italy, is actively engaged in designing wire ropes and uses proprietary design software to develop products that are the best-in-class. The company also has a comprehensive research and development facility in its manufacturing unit in Ranchi. Usha Martin has an extensive and dedicated network of distribution centres located across the globe. The company’s stock closed at a new high. It has broken out of a 34-week symmetrical triangle. For the last two weeks, the volumes are recording above the average and are the highest in the last 35 weeks. Its relative price strength is at a new high along with the price, showing an outperformance compared to the broader market. It is trading above all the key moving averages. It is 26 per cent above the 20 DMA and 28 per cent above the 50 DMA. The 20-period RSI is above the prior high and out of the squeeze area. It has entered into a strong bullish zone. The weekly MACD has given a fresh bullish signal. Since March 2020, the stock is forming higher lows. It is also above the 50-week moving average. The Elder impulse system has formed a strong bullish bar. It has also cleared the Anchored VWAP resistance. The stock is also meeting a majority of CANSLIM characteristics of investing. In short, the stock has broken out of a bullish pattern. Buy this stock in the range of ₹165-180. The medium target is at ₹206-215. Maintain a stop loss at ₹151. 
 

JBM AUTO LIMITED .......................... BUY ....................... CMP ₹517.35
BSE Code : 532605
Target 1 ..... ₹580
Target 2 .... ₹630
Stoploss....₹455 (CLS)

JBM Auto manufactures sheet metal components, assemblies, sub-assemblies, tools, dies and moulds. The company’s manufacturing facilities and tool rooms are strategically located in close proximity of leading automobile hubs of India at Faridabad, Greater Noida, Nashik, Chennai, Sanand, Pune and Indore. The company products are widely used in two‐wheelers, cars, tractors and trucks as well as white goods industries. Technically, the stock has broken out of a 28-week flat base. For the last two weeks, the above average volumes recorded and confirmed the breakout. Its relative strength line is above the prior high and at a nearly new high, showing an outperformance compared to the broader market. It is trading above all its key moving averages. Currently, it is trading 21.49 per cent above the 50 DMA and 18.12 per cent above the 20 DMA. It is also above the 50-week moving average. The Elder impulse system has formed strong bullish bars. It cleared the Anchored VWAP resistance. The RSI broke out of a squeeze area in the strong bullish zone. The weekly MACD is above the zero line, and the histogram shows an increased bullish momentum. In short, the stock has broken out of consolidation with higher volume. Buy this stock in the range of ₹480-520. Maintain a stop loss at ₹455. The medium-term target is at its previous high of ₹580-630.

*LEGEND: ■ EMA - Exponential Moving Average. ■ MACD - Moving Average Convergence Divergence ■ RMI - Relative Momentum Index ■ ROC - Rate of Change ■ RSI - Relative Strength Index (Closing price as of Dec, 27, 2022)

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.