NIFTY Index Chart Analysis

NSE benchmark Nifty50 has recently reached impressive heights, second only to its historical peak. Yet, it remains in a state of hesitation, seemingly reluctant to break free from an 86-week-long consolidation period. This intriguing conundrum unfolds against the backdrop of weakening market internals, characterized by a low VIX and a general lack of breadth. Despite the Nifty's lofty position, the market exhibits signs of indecisiveness and bearish sentiment. Over the past few weeks, it has been meandering within a 314-point range, its movements punctuated by candles that oscillate between uncertainty and negativity.

Remarkably, the Nifty has continued its ascent despite a decline in relative strength over the past month, effectively shrugging off numerous negative divergences and bearish patterns that emerged during this time. 

However, the tide may be turning. Recent price action has introduced a sense of caution into the mix, casting doubt on the possibility of a rapid climb to new all-time highs. A bearish candlestick pattern known as the "Shooting Star" has emerged, historically associated with reversals at swing highs. Although a definitive downturn is yet to be confirmed, it undeniably raises questions about the market's future trajectory. It seems that the domestic stock market currently stands at a pivotal juncture, teetering on the edge of a potentially significant shift in sentiment. 

Adding to the concerns, the Volatility Index India VIX remains stagnant at historically low levels below 12. Such prolonged low volatility periods are unlikely to sustain, and, any sudden spike in the VIX, breaching the 14 mark, could trigger a sharp decline in the index, leading to widespread repercussions. Furthermore, the USDINR, after experiencing a relentless 73-week rally from Rs 72.35 to Rs 83.28, has been seen in a consolidation phase for the past 35 weeks. Its imminent breakout looms on the horizon, with projected targets set at Rs 85-86. These factors collectively contribute to the growing sense of unease permeating the equity landscape.

Examining the current market swing, it becomes evident that it has yet to fully retrace the September 30 to December 01, 2022 rally, falling just short of the 100 per cent mark. In addition, this latest swing, encompassing an 11.58 per cent gain, has consumed a longer period - 55 days, to be precise - compared to the previous rally, which achieved a 12.78 per cent increase within a mere 41 days. Wedged between these two swings was a 75-day interval that witnessed a notable 10.90 per cent intermediate downtrend, constituting the second major correction in the past 85 months. The current prolonged consolidation phase holds within it the potential for transformation into a Stage-1 base. Provided that a breakout occurs above the 18,888 level, accompanied by robust trading volume and the emergence of a decisive, robust bull weekly candle. Failure to achieve these critical criteria, however, could signify the continuation of a Stage-3 distribution phase. 

The Nifty recently displayed a candle reminiscent of a bearish engulfing pattern, which subsequently confirmed its negative implications. Furthermore, a breakout from a 7-day flat base witnessed just a day prior, failed to sustain its momentum, resulting in a disappointing outcome. As the Nifty closed below the 8EMA and the previous day's low for two consecutive sessions, initial signs of a reversal have emerged. Throughout the 46-day uptrend, the 20DMA had served as a steadfast support line, facilitating three flat bases. However, with the failure of this breakout, it becomes increasingly apparent that the tide has turned. To solidify this notion, a lower swing low must be formed, aligning with the recent base low of 18,464. Notably, the 20DMA currently rests at a similar level of 18,443 further reinforcing its significance.

During a period where markets hover near all-time highs, devoid of substantial momentum or relative strength, caution should prevail when considering fresh exposure to the market. As long as the Nifty continues to trade above the critical 20DMA level at 18453, it is wise to refrain from adopting a bearish stance and instead await confirmation of a reversal. Existing portfolios require careful evaluation to safeguard hard-earned profits. Should the market present a confirmed reversal signal, it would be prudent to gradually exit a significant portion of the portfolio, shielding oneself from potential downturns.

STOCK RECOMMENDATIONS

INDIAN HUME PIPE CO.LTD. .............. BUY ..................... CMP ₹191.90
BSE Code : 504741
Target 1 .... ₹250 
Target 2 ..... ₹296 
Stoploss....₹162 (CLS)

The Indian Hume Pipe Co. Ltd. (IHP) was established in 1926 and has developed pre-stressed concrete pipes (non-cylinder), pre-stressed concrete cylinder pipes, bar wrapped steel cylinder pipes, hume steel pipes, welded steel penstocks and pre-stressed concrete railway sleepers. The company is specialised in the execution of turnkey water supply and sewerage projects. It is engaged in executing projects in water supply, irrigation, drainage, power generation and rail transport sectors and has executed a number of turnkey projects. It also has a presence in Nepal, Sri Lanka, Malaysia and Iraq. Technically, the stock has broken out of the 36-week Stage 1 cup. The breakout, with historically secondhighest volumes, shows a fresh buying interest in the stock. It exactly matches the transition rules of Stage 2. Earlier, the stock declined by 81.12 per cent from its lifetime and formed a base for the last 21 months. In the last two weeks, the stock rallied by 45 per cent and closed above the prior swing high. It decisively closed above the 10, 30, and 40 weekly averages, and they all entered into an uptrend. It is 29.5 per cent above the 10-week average and 30.36 per cent above the 200 DMA. Its price relative strength line is at a new high, indicating outperformance compared to the broader market. The weekly RSI shifted its range into the strong bullish zone after two years of consolidation. The MACD has moved above the signal line and just above the zero line. It closed near the anchored VWAP resistance, which was plotted at an all-time high. All other technical indicators are in the bullish set-up. In short, the stock is entering into Stage 2 and a long-term bullish trend. Buy this stock in the zone of ₹188-200. Maintain a stop loss at ₹162. The short-term target is ₹250. In the medium term, it can test ₹296. 

EVEREST INDUSTRIES LTD. ............... BUY ...................... CMP ₹946.45
BSE Code : 508906
Target 1 ..... ₹1,080 
Target 2 .... ₹1,120 
Stoploss....₹830 (CLS)

Everest Industries is a leading building materials’ provider to architects, designers and engineers and delivers completely customised solutions with excellent quality. The company offers a comprehensive range of roofing, ceiling, wall, flooring and cladding solutions and pre-engineered steel buildings for industrial, commercial and residential requirements. Technically, the stock is trading at the prior pivot of 31 weeks’ cup and handle. During the last week, volumes were recorded above average. The stock is moving in a staircase manner by forming a series of higher highs and higher lows. Since March 2020 it has not declined below the prior swing low on a weekly chart. Its price relative strength is also at the prior high. The stock is trading above all the key moving averages. The 10, 30 and 40 weekly averages are up-trending. It is trading 15.55 per cent above the 200 DMA and 9.61 per cent above the 50 DMA. The 20-week average holds support during the handle formation. The weekly RSI shifted its range into the strong bullish zone. The MACD histogram shows increased bullish momentum. As the stock is trading near its all-time high, it has cleared all the resistances. The Elder Impulse System has formed strong bullish bars. All the other indicators are also in the bullish set-up. In short, the stock is trading near the prior pivot and all-time high. Buy this stock in the zone of ₹ 900-935. Maintain a stop loss at ₹830. The short-term to medium-term target is placed at ₹1,080 followed by ₹1,120.
(Closing price as of June 13, 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.