NIFTY Index Chart Analysis

Nifty 50, the benchmark index, gained for the seventh straight year in CY 2022. Historically, Nifty has witnessed two spectacular winning streaks: the first one was between 2002–2007 which lasted about six years and the second began in 2016 that has surpassed its prior winning streak of six years as it has extended its winning streak for the seventh consecutive year in 2022. In between, Nifty had witnessed six years (2008–2013) of consolidation. The big question now is whether Nifty’s current winning streak will continue or will it enter into a long period of consolidation? 

Only time will tell but we will deep dive into the technical and see if we can get an answer to this question. On the monthly chart, Nifty has formed a bearish engulfing candle. Historically, before all the major corrections, the index had formed such a bearish pattern. In the years 2000, 2006, 2008, 2011, 2016, 2018 and 2020 as well as 2021, tops were formed with bearish engulfing candles. Interestingly, the RSI has formed a very serious negative divergence currently. Before the sharp decline in March 2020 and the correction in 2016, a similar divergence occurred. On the weekly timeframe, on several occasions, negative divergences occurred.

So, this time we need to get confirmation by weekly RSI moving below the 52-50 zone. Last month, the RSI shifted its range into a strong bullish level of above 60 after spending 10 months in the neutral zone. This, along with the price breakout, did not sustain for more than six weeks. With this we can assume that the breakout turned out to be a failed one. For a bullish bias to continue, the index has to break above the previous high and the RSI must be in a bullish zone. Nifty has formed another inside bar on a weekly chart

Importantly, Nifty is currently trading below all the key moving averages. It has broken below the 100 DMA and the 20-week moving average last Friday, which was a major support on earlier occasions. The 20 DMA has crossed under the 50 DMA, which is short-term negative. The daily RSI is below 40 and has entered into a bearish zone. As Nifty has formed a weekly inside bar, the previous low of 17,774 has become crucial support. Anything below this will cause the index to decline further. 

We can categorise the last two weeks’ price action as consolidation. It needs to close above the 18,265-18,303 zone of resistance for an upside breakout. The behaviour around this zone is very crucial for directional market bias. The 241 pointsbounce on Monday seems to be just a technical bounce due to positive global markets. The price pattern analysis shows that the December 1 breakout was a false one as the index formed a lower low. It corrected 5.9 per cent from the recent top. The earlier corrections were between the range of 7.45-9.6 per cent and also witnessed breakdown of the rising wedge pattern.

Earlier, Nifty corrected 18.4 per cent from its October 2021 high. If the index witnesses Category 1 correction, it may fall at least 13-18 per cent. This is nothing but testing the level of 16,747, which is also 61.8 per cent retracement level of the prior uptrend. Nifty has already closed below the 23.6 per cent retracement level. In any case, if it declines below 17,774 next week, the next level of support is at the 38.2 per cent retracement level of 17,472. The weekly RSI (55) is in the neutral zone. The daily MACD line is below the signal line, which indicates a fresh bearish bias. The daily ADX (27.25) indicates the strength of the bears.

The index has attempted to move above the 50 DMA but failed last week. The advance-decline ratio has mostly been negative during the week. The FIIs have been selling continuously since December 1. They sold twice as much as what they sold in 2008. At the same time, the market currently lacks a leading sector. Even the PSU banks, which led the rally in Nifty Bank, have lost momentum. The PSE index, which represents the public sector companies, has been showing a long-term breakout. As the earning season begins this week, and the market participants are not much enthusiastic about it, it would be advisable to trade with minimum position sizing.

STOCK RECOMMENDATIONS

ZYDUS LIFESCIENCES LTD. ................... BUY ....................CMP ₹457.55

BSE Code : 532321
Target 1 .... ₹493 
Target 2 ..... ₹535 
Stoploss....₹424 (CLS)



Formerly known as Cadila Healthcare Limited, Zydus Lifesciences is a leading Indian pharmaceutical company which is a fully integrated, global healthcare provider. From formulations to active pharmaceutical ingredients (API) and animal healthcare products to wellness products, Zydus has a strong presence in the Indian pharma space. The company has manufacturing and research facilities in Gujarat, Maharashtra, Goa, Himachal Pradesh and Sikkim in India and in the US and Brazil. Technically, the stock has broken out of a 10-week cup pattern. For the last two weeks, the volumes have been recorded above average. It closed above the 38.2 per cent retracement level of the prior downtrend. Its price relative strength line is at a new high, showing outperformance and it is trading above all key moving averages. It is 20.49 per cent above the 200 DMA and 9.47 per cent above the 50 DMA. The 20 DMA just crossed the 50 DMA, which is a short-term positive. The weekly RSI and MACD are in a strong bullish set-up. The RSI also closed above the prior high and is making higher highs and lows. The Elder impulse system has formed strong bullish bars. It cleared the Anchored VWAP resistance. The ADX (24.93) shows a solid strength in the trend. In short, the stock has broken out of a bullish pattern with volume. Buy this stock above ₹455, and maintain a stop loss at ₹424. The short-term target is ₹493. Above this, it can test ₹535

GODFREY PHILLIPS INDIA LTD. ................... BUY ........... CMP ₹2102.65

BSE Code : 500163
Target 1 ..... ₹2380 
Target 2 .... ₹2450 
Stoploss....₹2010 (CLS)



Godfrey Phillips India Limited is the flagship company of Modi Enterprises. It makes some of the most popular cigarette brands in the country such as Four Square, Red and White, Cavanders, Tipper and North Pole. The company also manufactures and distributes the iconic brand Marlboro under a license agreement with Philip Morris. It has expanded its business interests in confectionery and retail. Along with processes like Six Sigma, 5 S, Kaizen and Lean Manufacturing, the Ghaziabad unit also boasts of certifications like ISO – 22000 and ISO- 14001. The stock is trading at a lifetime high, and its Relative Strength line is also at a new high. It broke the 20-day cup pattern with a massive volume. It is trading above the all-key moving average. It is trading 16.58 per cent above the 50 DMA and 10.2 per cent above the 20 DMA. The daily MACD has given a fresh buy signal. The daily and weekly RSI is in a strong bullish zone. The weekly Elder impulse system has formed a strong bullish bar. It cleared the Anchored VWAP resistance. The daily KST is about to give a bullish signal and the true strength indicator has already given a bullish signal. The stock is meeting a majority of CANSLIM investing parameters. Its EPS strength is at 96 is a great score indicating consistency in earnings. The RS rating of 90, which is again great, indicates outperformance as compared to other stocks, with buyer demand at A- which is evident from recent demand for the stock. A master score of B is close to being the best. Overall, the stock has great fundamentals and technical strength to stay in momentum. In a nutshell, the stock has broken out a bullish pattern. Buy this stock above ₹2,210. Maintain a stop loss at ₹2,010. The short-term target is ₹2,380, and in the medium term, it can test ₹2,450.

*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.