NIFTY Index Chart Analysis

The bulls remained in control over the market and did not allow the Nifty to close below its previous day’s low until the last week. Meanwhile, Nifty continued to rally more than 1,000 points for nine straight sessions. The Reserve Bank of India (RBI) announced a neutral to favourable monetary policy that helped the markets to continue the rally in a series of truncated weeks. The advance-decline ratio was positive for the last two weeks as the broader market indices also participated in the rally. As had been forecasted in our earlier editorial, the right shoulder formation is 90 per cent done. 

We expect the right shoulder top to form at 17,758 or 17,833 or at 18,114 which is left shoulder high. Nifty has achieved the first two levels. Now the question is whether it will test the level of 18,114? In a classical technical analysis of price patterns, the symmetry in shoulders is usually a good clue to the veracity of the pattern formation, which means two shoulders appear at about the same price level. But that may not be the case. The first two levels of 17,758 and 17,833 are the closing highs of the left shoulder. Within this shoulder, it formed a double-top pattern too. 

If history is repeated or the price gets symmetrical, expect a 4 per cent decline from now and a bounce towards the 18,114 level before completing the right shoulder top. This means two-leg swings, i.e. a low-high may be formed in the next four weeks. These short-term or maximum of two-week and three-week swings will decide the future long-term direction of the market. In another sense, the upside is limited and we expect the market to move between the 17,850-17,165 zone for the next 2-4 weeks. Another principle is that the price moves in trends and never in a straight line fashion. 

Unless there is a base formation and a breakout, we cannot assume that the trend has decisively reversed on the upside. To get a confirmation for an uptrend, the higher swing high is not enough and it must also form a higher low. If the pullback is a reality, a move below 17,600 – i.e. 23.6 per cent current upswing – and the previous week’s low, will give a confirmation. This pullback can extend towards 17,335 and 17,215 – almost equivalent to a double-top valley point in the left shoulder. The fresh week started negatively as IT major Infosys disappointed with its earnings. Nifty sharply declined below the previous week’s low in the opening hour itself.

However, banks and financial stocks came to the rescue and the index was able to recover most of the losses. For the second consecutive day Nifty formed an open high candle, which is not good, particularly when it is at a swing high. The 50 DMA has finally entered an uptrend. The index is trading above all the key long-term and short-term averages. After March 28, the index has managed to close below the 5 EMA. The RSI is once again back into the neutral zone. The MACD line is above the signal line but with a declined momentum. But even after all this strong evidence, some elements of doubt persist.

Nifty has formed three indecisive, exhaustion candles for four days before the two-day decline. In any case, if Nifty closes below 17,634 on a weekly chart, it will form a bearish engulfing candle, which is again a signal of reversal. Most importantly, the VIX is at record lows again, which also shows that the trend is at a mature stage. We have given the reasons for an inverse relationship between VIX and the benchmark index in the previous columns. Notably, the earnings’ season kicked off on a negative note. Both IT majors disappointed the street. The market is not expecting a good quarter. During the next four weeks, apply a range and neutral strategies and reduce the leveraged positions. 

STOCK RECOMMENDATIONS

NEULAND LABORATORIES LTD. ............... BUY ............... CMP ₹2,054.50
BSE Code : 524558
Target 1 .... ₹2,300 
Target 2 ..... ₹2,370 
Stoploss....₹1,964 (CLS)

Hyderabad-based Neuland Laboratories is a leading manufacturer of active pharmaceutical ingredients (APIs) and an end-to-end solution provider for the pharmaceutical industry’s chemistry needs. The company provides solutions across the full range of the pharmaceutical industry’s chemistry requirements from synthesising library compounds to supplying NCEs and advanced intermediates at various clinical lifecycle stages as well as commercial launches. The company’s strength is its expertise in manufacturing APIs and advanced intermediates from its USFDA-approved facilities. Technically, the stock broke out of its 19-week consolidation two weeks ago. It retested the breakout level and bounced, trading above the previous week’s high. The volumes were above average for the last four weeks. Its price relative strength line is at a new high, showing an outperformance compared to the broader market. Currently, the stock is trading at the 61.8 per cent retracement level of the prior downtrend. It is trading 39.52 per cent above the 200 DMA and 24.47 per cent above the 50 DMA levels. All short-term and long-term averages are in an uptrend. The RSI is in a strong bullish zone. The MACD shows strong bullish momentum. Institutions have increased their stake in the company by 4.05 per cent, showing buying interest and accumulation. It has cleared all the resistances. In short, the stock is moving higher after testing the breakout level. Buy this stock in range ₹2,030-2,070. Maintain stop loss at ₹1,964. The short-term and medium-term target is placed at ₹2,300-2,370.
 

SUNDRAM FASTENERS LTD. ................... BUY ................ CMP ₹1,058.45
BSE Code : 500403
Target 1 ..... ₹1,150 
Target 2 .... ₹1,225 
Stoploss....₹983 (CLS)

Sundram Fasteners is a global leader in manufacturing critical, high-precision components for the automotive, infrastructure, windmill and aviation sectors. It has a varied range of products, including fasteners, powertrain components, sintered metal products, iron powder, cold extruded parts, radiator caps and water pumps. Technically, the stock has broken out of a 15-week consolidation with an above-average volume. It has registered a new lifetime high. Its price relative strength line is at a new high. The 10-week average has been acting as a support for the last six months. It is trading 15.36 per cent above the 200 DMA. The MACD has given a fresh buy signal. The RSI is in the strong bullish zone and shifted its range. The Elder Impulse System has formed strong bullish bars. As the stock is trading at a new lifetime high, it has cleared all resistances while all indicators are in the bullish set-up. In short, the stock has broken out of a tight base with higher volume. Buy this stock above ₹1,055. Maintain stop loss at ₹983. The medium-term target is ₹1,225 and the short-term target is placed at ₹1,150.

(Closing price as of Apr 18, 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.