NIFTY Index Chart Analysis

After a string of eight consecutive decline days and nine bearish bars, the Nifty has turned up, as expected. The index has bounced back and retraced 61.8 per cent of the previous downswing, which is a typical pullback level in a downtrend. The index has stayed within a 200 points’ range, oscillating around the 200 DMA and closing just below the 200 EMA. The recent bounce was due to short covering and the RSI coming out of a squeeze area on an hourly chart. For the bulls to regain their strength, the bounce needs to close above the February 22 gap area around the 17,800 level. 

There is a cluster of resistance placed in the region of 17,790-17,860, including the sloping channel resistance and the 50 DMA at 17,855. A move above the 50 DMA will indicate better relative strength in a normal market condition. As mentioned above, the Nifty tested the exact 61.8 per cent retracement level of 17,799.95 and also the resistance in the opening downside gap area. The zone of 17,800-17,890 will be crucial for the bears to protect. After two successive gap-up openings and over 400 points’ rally with lower open interest, the rally is mainly due to short covering. 

The shooting star candle formed at this crucial resistance area is an early indication of the end of the pullback rally. Meanwhile, the bulls need to protect the March 3 low of 17,427 and the 200 DMA of 17,413. If the Nifty closes below the 200 DMA for two consecutive days, it will signal more weakness in the market. The Nifty found support at the internal sloping trend line, which was drawn by connecting subsequent highs since the October 2021 high. Additionally, it was also able to protect the 50-week and 40-week averages. Despite a big bearish engulfing candle, the hammer-like candle at the support clearly indicates a lack of follow-through selling by the bears. 

Going ahead, we expect consolidation to be possible above the 50-week average and the 50 DMA for another one to two weeks before taking a decisive directional bias. For a confirmed uptrend, the Nifty needs to form a higher high by moving above the level of 18,135. The 14-period weekly RSI is at 49.6, which is in the neutral zone. The MACD is below the signal line, and the histogram shows bearish momentum. Importantly, the MACD line is declining, which is a concern for now. Both indicators are not showing any divergences. Look for a divergence if the Nifty wants to make a new high swing.

The broader market has been under pressure since the October 2021 top. Many stocks have declined by 25-30 per cent or even more. None of the sector indices are strongly bullish enough to lead the market. The Nifty IT is relatively better, with strong relative strength and momentum, but the Nifty IT index is near resistance. Last week, the PSU Bank index rallied and closed above the two-week high. The FMCG sector is also looking better but needs to improve its relative strength. However, these sectors are not yet positioned to lead the broader market. 

Talking about India VIX, which is a volatility index also known as the fear index, it is currently trading at lows not seen since July 2021. As mentioned several times before, the VIX has an inverse relationship with the index, meaning any spike in VIX will hurt the index. The lowest VIX level in recent history was seen on December 27, 2019, just before the pandemic-led crash. Additionally, the implied volatility (IV) is also at its lowest level of 10.29 with a record low of 10.22 on February 16. This low VIX and low IV scenario should warrant caution for traders. Any complacency in risk management could end up resulting in a rude shock.

STOCK RECOMMENDATIONS

POWER MECH PROJECTS LTD ............... BUY .................. CMP ₹2,393.35
BSE Code : 539302
Target 1 .... ₹2,750 
Target 2 ..... ₹2,940 
Stoploss....₹2,215 (CLS)

A company engaged in engineering and construction activities, Power Mech Projects provides integrated services in the erection, testing and commissioning (ETC) of boilers, turbines and generators and balance of plant (BOP), civil works and operation and maintenance. The company undertakes ultra mega power projects, super critical thermal power projects and sub-critical power projects. The company has eight strategic units, namely, industrial services, industrial construction, overseas business, electrical transmission and distribution, infrastructure construction, hydro power and water, manufacturing and heavy fabrication and mining. Its clients include BHEL, Larsen and Toubro, Vedanta, Tata Power, NTPC, etc. Technically, the stock has broken out of a 12-week double-bottom pattern and closed at the prior pivot level. Its relative strength line is at a new high, showing an outperformance compared to the broader market. It is trading above all the key moving averages. The moving average ribbon has acted as support in the recent bottom. It is 50.35 per cent above the 200 DMA and 18.07 per cent above the 50 DMA. All the moving averages are in an uptrend. The weekly Elder Impulse System has formed strong bullish bars. The MACD is about to give a bullish signal. The 20-period RSI is in a strong bullish zone. It also cleared the Anchored VWAP resistance and traded above the Ichimoku cloud. In short, the stock has broken out of a bullish pattern and is trading near the prior pivot level. Buy this stock in the ₹2,390-2,425 zone. Maintain a stop loss at ₹2,215. The short-term to medium-term target is ₹2,750 followed by a long-term target of ₹2,940. 

INGERSOLL-RAND (INDIA) LTD. ................ BUY ............. CMP ₹2,463.80
BSE Code : 500210
Target 1 ..... ₹2,834 
Target 2 .... ₹2,950 
Stoploss....₹2,300(CLS)

Ingersoll Rand is a global market leader with a broad range of innovative and mission-critical air, fluid, energy and medical technologies. It provides services and solutions to increase industrial productivity and efficiency. The company has a strong brand presence in the Indian compressor market with a dominant market share of over 45 per cent. The parent company provides the required technological support. It has a manufacturing facility in Ahmedabad. Last year, it launched five new products in the market in various segments. Technically, the stock has broken out of a 15-week cup pattern with above average volume. Its relative strength line is at a new high, showing an outperformance compared to the broader market. It closed at a new lifetime high and traded above all the key moving averages. It is 30.69 per cent above the 200 DMA and 21.32 per cent above the 50 DMA. All the long-term and short-term averages are in an uptrend. The weekly moving average ribbon has been acting as strong support since November 2020. The weekly Elder Impulse System has formed four successive bullish bars. As the price is in uncharted territory, there is no resistance. The 20-period RSI is in a strong bullish zone along with a 50-week average in an uptrend, which is a long bullish signal. All the momentum indicators show bullish strength. In short, the stock is in an uptrend and has broken out of a bullish pattern. Buy this stock in the ₹2,425-2,475 zone. Maintain a stop loss at ₹2,300. The short-term to medium-term target is ₹2,834 while the long-term target is placed at ₹2,950.

(Closing price as of Mar 06, 2023)

*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.