NIFTY Index Chart Analysis

The market has been clueless about any specific direction for the last four weeks or 20 sessions. The prolonged sideways action will generally result in an impulse move in the direction of the breakout. It is waiting for a trigger point, which is the Union Budget. Historically, in 14 out of 22 years, the pre-existing trend has reversed postbudget. At the same time, pre-budget months have a positive to a neutral bias, whereas post-budget months have a negative bias. On only seven occasions in the last 26 budget sessions (including ‘vote on account’ budgets), the index moved over 1 per cent to 4 per cent). Even in the 2020 historical fall, the budget acted as a trigger point to it. Let us wait for the triggers this time, and we will go according to direction.

The Nifty is seen hovering between 50 DMA and 100 DMA. It has formed the second consecutive long-legged doji candle on the weekly chart. Back-to-back formation of doji candles is a sign of extreme indecision. Once the index decisively closes above or below the zone of 17,761-18,265, this will act as a first sign of a breakout. The last four weeks' price action is limited to the December third week's range. The 50 per cent retracement level (17,818) of the previous upswing and the 20-week average acted as a strong support zone. This 17,761-18,265 range has to break decisively on either side for a directional bias. 

Currently, the Nifty is exactly at the halfway mark. It can go either side. The inside bars and the doji candle do not indicate any trend change implications. Before this four-week consolidation, the Nifty broke the rising wedge pattern, which is negative for the long term. At the same time, the breakout, which led to formation a lifetime high, did not sustain for the second week. With this, the breakout on the upside failed, and the downside breakout is valid. Technically, the Nifty is consolidating and it has been in the intermediate downtrend. In any case, if the Nifty breaks below 17,760 on a weekly closing basis, the long-term trend also will be on the downside. 

The 50 DMA is already in the downtrend, and the 20 DMA is flattened. The 100 DMA has almost flattened. It acted as a strong support in recent past. Interestingly, the long-term trend indicator, 200 DMA, just curved on the downside. Even though the Nifty is trading above the 200 DMA, turning of the long-term moving average to the downside is not a good sign. The weekly and the daily RSI are in the neutral zone, at historical support. The weekly MACD histogram shows an increased momentum on the downside. As mentioned in the earlier note, the Nifty formed a double-bottom kind of pattern.

With the extended right bottom, the pattern changes into a rectangle or a flat base. This is also called an Adam and Eve double bottom. A strong close with a high volume above 18,265-283 will lead to breakout of this double bottom pattern and on a close above the 18,265-283 level there is high probability it may move towards another new high. If it fails to move on the upside and breaks below the 17,760, the immediate downside target is 200 DMA, which currently stands at 17,286. The 27-week rising wedge breakdown target is placed at below the 16,000 levels, which is also an 80 per cent retracement of the wedge.

Generally, the pattern breakout targets will meet and would consume less than the pattern formation duration. We have already spent four weeks sideways. Post-budget, if the direction is on the downside, the target will reach faster. As the event risk is very near, trading in the zone will be difficult, particularly in a directionless market. The volatility will increase naturally as we head towards event day and expect erratic movements on the event day. The RRG charts exhibit the leading sectors are missing. Though the metal, PSU bank and oil and gas sector indices are in the leading quadrant, they are losing their momentum. The IT index, which was the top gainer last week, is near the leading quadrant. All other sectors are in the lagging quadrant. This shows that the market needs a big push to gain momentum and relative strength. Hope the budget will give a booster dose to the market or else be prepared for re-test of 200 DMA on the downside.
 

STOCK RECOMMENDATIONS

SIEMENS LIMITED ........................... BUY ....................... CMP ₹3,062.50
BSE Code : 500550
Target 1 .... ₹3,235 
Target 2 ..... ₹3,330 
Stoploss....₹2,960 (CLS)

The company is the flagship listed unit of Siemens AG in India. Siemens is a leader in technology solutions for mobility, power transmission and distribution, and digital industries. Its revenues mainly come from gas and power (34 per cent), smart infrastructure (33 per cent)), and digital industries (22 per cent). Other than transmission and distribution all segments witnessed significant growth. It has plants in 13 locations in India. Technically, the stock is consolidating for the past 18 weeks, which is a Stage-2 base. It is trading 2 per cent to the pivot. Its Relative Strength line is also near the new high and is trading above all the key moving averages. It is 13.81 per cent above the 200 DMA and 5.17 per cent above the 20 DMA. The weekly MACD is about to give a bullish signal. The weekly 20-period RSI is in the bullish zone and about to break the tight range. The ADX (21.76) shows decent trend strength, and the +DMI is above -DMI and ADX. The weekly Elder impulse system has formed bullish bars. The above-average volume shows a surge in buying interest. The stock is also meeting a majority of CANSLIM investing characteristics. Its EPS strength is good at 89, and the RS line is near high. The buyer demand is at A- and indicates recent demand for the stock. In short, the stock is near the breakout level. Buy this stock above ₹3,060. Maintain a stop loss at ₹2,960. The short-term target is ₹3,235, and the medium-term target is ₹3,330.

HDFC BANK LTD. .......................... BUY ........................ CMP ₹1,660.80
BSE Code : 500180
Target 1 ..... ₹1,874 
Target 2 .... ₹2,000 
Stoploss....₹1,560 (CLS)

It is the largest private sector bank with a 70 million customer base. It has a 7,183 branch network and 19,007 cash deposit and withdrawal machines (CDMs and ATMs) in cities and towns. Up to 51 per cent of the branches are in semi-urban and rural areas. It offers retail banking, wholesale banking, and treasury service. It has a market share of over 11.5 per cent in advances and 9.5 per cent in deposits. The stock has formed a 41-week, Stage-1 cup and handle pattern. It is trading at a prior pivot of Rs 1,669. During the last week, the volumes recorded were above average, indicating a fresh buying interest. The Relative Strength line is also at a new high, showing an outperformance compared to the broader market. It is trading above all short-term and long-term moving averages, and they are in an uptrend. The daily MACD has given a fresh bullish signal on the zero line. The weekly and daily RSI is in a strong bullish zone. The stock is meeting a majority of CANSLIM investing characters. The EPS strength is at a great level of 91. The buyer’s demand is good at B+. The institutional sponsorship has increased by 1.22 per cent in the last quarter. It has announced double-digit earnings growth consistently. Its return on equity is a decent 15 per cent. As the stock is trading near the pivot level, all indicators show a bullish set-up. In short, the stock is on the verge of a big bullish breakout. Buy this stock above ₹1,669. Maintain a stop loss at the recent swing low of ₹1,560. The mediumterm target is ₹1,874. The current breakout target is near to the level of ₹2,000.

*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.