NIFTY Index Chart Analysis

The Nifty has negated a red closing for the fourth consecutive month. It ended flat with a perfect Doji candle formation on a monthly candle. Historically, the Nifty has never declined for four consecutive months, even in the most bearish year. The last time this feat was achieved was almost two decades back. While talking about the quarterly chart, in the first quarter of CY 2023 an index has formed an inside bar as the price traded within a high and low range of the prior quarter. As we had anticipated, the 10-day base or a double bottom was broken with a gap opening and it led to the formation of strong bullish candle. 

During this base, the index took support at the downward channel demand line. It closed above the previous week’s high, which is a big positive sign for the directional view. Importantly, the index has retraced above the 23.6 per cent retracement of the downtrend from the December 2022 high, which is an early sign of reversal. It also retraced above 50 per cent of the prior downswing – a short-term positive. Historically, April has been positive as the Nifty has closed above its opening level more than 60 per cent of the time in the last 20 years. Hence, we anticipate the direction for the next four to six weeks is likely to be positive. 

During this period, the index may test the 17,800-18,114 zone on the upside, which may lead to a formation of the right shoulder. Interestingly, the 61.8 per cent retracement level of the DecemberMarch downtrend is at 18,101. Before these levels are achieved, the 17,500- 17,590 zone will act as short-term resistance. The Nifty closed above the 100-week moving average. History was repeated as the Nifty moved in a similar fashion as that of June 2022. It took support at the broadening formation and fell below the 100-week average for just one week and then bounced back. This time it took support at the channel line and closed above 100 MA.

The Nifty also closed above the earlier broadening formation’s resistance line. It also closed above the 20 DMA decisively. The 50 DMA is just 1.13 per cent away and it may test this level in the next two days. The RRG momentum line moved above 100, which is a positive sign. It is a known fact that the market moves in trends. Before forming another lower low, it must witness an upswing and test the resistance. Importantly, the index has not moved below the September low in the correction. But the Nifty 500, Nifty Mid-Cap 0-100 and Small-Cap 100 have declined below the September lows. 

It shows that the broader markets were weaker. The beaten-down sectors such as IT, automobile, pharmaceuticals and FMCG recovered last week. Out of all the sector indices, the Nifty PSE looks better on a long-term chart. Relative Rotation Graph (RRG) analysis shows that the FMCG, PSE and infrastructure indices are in the leading quadrant. These sector stocks are likely to outperform the broader markets. The automobile and IT indices are also in the leading quadrant but are losing relative momentum. The consumer durable sector index is improving in terms of relative momentum and may enter the leading quadrant in the next one or two weeks. 

Focus on the leading stocks with better relative strength in this sector. Last week, a rally in the global markets also fuelled positive sentiment in the domestic market. The S and P 500 index is about to enter Stage 2 on a daily timeframe. The Dow Jones closed above the 50 DMA. The NASDAQ index closed above the prior swing high, which is like music to bulls’ ears and positive for the domestic IT sector. The main worry at present is VIX. The India VIX is back to the 12.93 level. Last week it fell over 15 per cent. Historically, the 11-13 zone is a very critical level on the VIX. Any spike in volatility from this zone will hurt the bulls. On March 3, India VIX declined to 12.18, and as a result we saw volatility raise its ugly head with the market witnessing a sharp decline. It is better to be selective on trades and avoid highly leveraged positions.

STOCK RECOMMENDATIONS

ALKEM LABORATORIES LIMITED ............... BUY ............. CMP ₹3,399.65
BSE Code: 539523
Target 1 .... ₹3,700 
Target 2 ..... ₹3,800 
Stoploss....₹3,270 (CLS)

Alkem Laboratories Limited is a leading Indian pharmaceutical company with global operations engaged in developing, manufacturing and selling pharmaceuticals and nutraceutical products. The company produces branded generics, generic drugs, active pharmaceutical ingredients (APIs) and nutraceuticals, which it markets in India and other countries. With a portfolio of more than 800 brands, Alkem Laboratories is ranked the fifth-largest pharmaceutical company in India in terms of domestic sales. The company also has a presence in more than 40 countries with the United States being its key focus market. It has 21 manufacturing units. Technically, the stock is trading at a pivot level of a 45-week Stage 1 base. The price is above the 40-week and 10-week averages and they are in an uptrend. It has also registered a golden crossover and the 50 DMA has moved above the 200 DMA. Currently, it is trading 10 per cent above the 200 DMA. For the last two weeks, the volumes recorded have been above average. Its price relative strength line (RSI) of 70 is above the prior high and its rise is an indication of outperformance as compared to the broader market. It closed above the 38.2 per cent retracement level of the prior downtrend, which is an indication of reversal on the upside. The Elder Impulse System has formed a strong bullish bar on the weekly chart. The weekly RSI has entered into a strong bullish zone by closing above the prior swing high. The MACD is above the zero line and the histogram shows strong bullish momentum. It has closed above the Ichimoku cloud and has also cleared the anchored VWAP resistance. In short, the stock is at a matured stage of a Stage 1 base. Buy this stock above ₹3,400. Maintain stop loss at ₹3,270. The short-term to medium-term target should be ₹3,800.

SOM DISTILLERIES AND BREWERIES LTD. ......... BUY ....... CMP ₹154.45
BSE Code: 507514
Target 1 ..... ₹179 
Target 2 .... ₹189 
Stoploss....₹142 (CLS)

Som Distilleries and Breweries Limited (SDBL) is one of the prominent players engaged in the production of beer and Indian made foreign liquor (IMFL) with an installed capacity of 59,200 kilolitres of beer and 5,400 kilolitres of IMFL. The company commands 36 per cent market share in beer and 19 per cent market share in IMFL. It also manages a distribution network spread over Arunachal Pradesh, Chhattisgarh, Delhi, Gujarat, Kerala, Karnataka, Jharkhand, Odisha, Pondicherry and West Bengal. The product portfolio consists of rum, brandy, vodka and whisky. Up to 84 per cent of its top-line is derived from beer. It has a strong distribution network across India and has strategic partnerships with Jagatjit Industries and White Owl Distilleries. Technically, the stock has broken out of a 15-week cup and handle pattern with an above-average volume. Its price relative strength line (RSI) is at a new high, showing an outperformance compared to the broader market. The stock is currently trading 42.64 per cent above the 200 DMA and 23.60 per cent above the 50 DMA. All the short-term and long-term averages are in an uptrend. The weekly MACD has given a fresh buy signal and the RSI has emerged out of a squeeze to shift its range into a strong bullish zone. As the stock is trading at a new lifetime high, it has cleared all the resistances and is trading above the anchored VWAP resistance and Ichimoku cloud. The Elder Impulse System has formed strong bullish candles. In short, the stock has broken out of a bullish pattern with volume and trading in an ideal ‘buy’ range. Buy this stock in the range of 154-157. Maintain stop loss at ₹142. The short-term to mediumterm target should be ₹179 and ₹189, respectively.

(Closing price as of Apr 03, 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.