NIFTY Index Chart Analysis

The S&P BSE Sensex, a benchmark index of the Bombay Stock Exchange, hit a new high last week. The other frontline index, Nifty 50, missed it just by one point. After reaching around the all-time high, the index declined and formed bearish patterns on a weekly timeframe. The pattern formation was similar to the previous historical all-time highs. The Nifty has formed a dark cloud cover candle on the weekly chart. During the highs of October 2021 and December 2022 it had formed a similar pattern around the all-time high. Earlier, after the formation of a bearish pattern near the all-time high, the Nifty declined by 18.40 per cent and 10.9 per cent, respectively. 

Before coming to the conclusion about a reversal, we should be aware that all the patterns must get a confirmation for their implications by closing below the low of the bearish candle. Now, the Nifty must not move above the bearish candle high of 18,887 and close below the low of 18,647. Only in this case we can assume that the market has reversed. In the bull case scenario, if the Nifty moves above 18,887, as mentioned earlier, the targets are placed at 19,118 and 19,455. To achieve these short-term targets, the Nifty should not decline below the previous week’s low of 18,647. This 240-point range (18,647-18,887) is verycrucial for market direction in the short to medium term.

Because several bearish candlestick patterns have failed in recent times, we must wait for confirmation of the current bearish pattern. On the daily chart, the Nifty broke below the recent minor low and closed below the 20 DMA, which is negative for the index. It has also registered a breakdown of rising wedge pattern decisively with higher volumes and distribution days. It also registered a failed breakout of a flat base. Before this, the index formed five bases in the rally from March 29. In the last 57 trading sessions, the index has been up by 1,973 points or 11.66 per cent, which is almost equal to the previous decline.

This 100 per cent retracement took less time. The last downswing was in 81 sessions. During the current uptrend, the index closed below the 20 DMA for the first time. Most of the declines were limited to 2-3 days, but the down days had a sizeable bearish candle. On the other hand, on the upside there were manyindecisive candles formed. Most of the upside moves were with low volume and the declines were with higher volume. This is the reason the current up-swing did not give the required confidence to go for aggressive long positions.

The VIX continues to be at historical lows. A spurt in VIX will increase the probability of a sharp decline. VIX at historical lows indicates that the upside possibilities are limited. Even if it goes up, sustaining at higher levels will be a question mark. The low volume also indicates lesser participation by traders. The market breadth also needs to be improved. Heavyweight sectors like banks, financials and IT are relatively underperforming. Unless there is a significant increase in volume and outperformance of leading sectors, there will be uncertainty. On the indicators front, the daily RSI shifted its range to a neutral zone from a strong bullish zone.

It gets the confirmation for a bearish divergence by closing below the previous swing lows. Even on the weekly chart, this leading indicator shows signs of weakening. The daily MACD has also declined much below the signal line, showing an increased bearish momentum. As mentioned in the earlier issue, the Commodity Channel Index (CCI), which indicates the market’s short-term and long-term cycles, showed the intermediate top much earlier, two weeks ago. We can initiate fresh purchases if Nifty achieves a decisive breakout with higher volume. Otherwise, wait for the market behaviour between 20 and 50 DMAs. Be neutral in this range. As the indicators turn negative, it may be wise to be cautious. Wait for a close below 50 DMA for a bearish view.

STOCK RECOMMENDATIONS

INGERSOLL-RAND (INDIA) LTD. .............. BUY .................. CMP ₹2948.30

BSE Code : 500210
Target 1 .... ₹3180 
Target 2 ..... ₹3240 
Stoploss....₹2721 (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 nine-week flat base. For the last three weeks, the volumes were recorded above average. Its relative strength line is at 83, which is good and shows an outperformance compared to the broader market. It formed a new all-time high during this week. The stock is above all the key moving averages. Currently, the stock is trading above all the long-term and short-term averages and is in an uptrend. The weekly moving average ribbon has been acting as strong support since November 2020 in all swing lows. The weekly Elder Impulse System has formed three successive bullish bars as the price registered the highest weekly closing and was in uncharted territory. The RSI is in a strong bullish zone. The MACD histogram shows strong bullish momentum. The KST and TSI indicators have been in a strong bullish setup. In short, the stock is in an uptrend and closed at a new high. Buy this stock in the ₹2,934-2,965 zone. Maintain stop loss at ₹2,721. The short-term to medium-term target is ₹3,180-3,240.
 

RICO AUTO INDUSTRIES LTD. ............... BUY ................ CMP ₹102.32

BSE Code : 520008
Target 1 ..... ₹118 
Target 2 .... ₹130 
Stoploss....₹89 (CLS)

Rico is a world-class engineering company and supplies a wide range of high-precision, fully machined aluminium and ferrous components and assemblies to automotive OEMs across the globe. The company has a presence in four continents with 15 manufacturing units. The company has established strong in-house research and development capabilities. Rico’s integrated services include design, development, tooling, casting, machining and assembly across ferrous and aluminium products. The company’s products are used in passenger and commercial vehicles and two-wheelers. Its focus is on electric vehicles with 4W electric motors housings, 4W hybrid transmission housings and 2W parts. It has six subsidiaries. The stock has broken out of a 22-week, Stage 2 cup pattern with a massive volume. It formed a very strong bullish bar. For the last seven weeks, the volumes recorded have been above average. Its price relative strength line is at a new high of 91, indicating an outperformance compared to the broader market. The stock is trading at a five-year high. It is above all the key moving averages. It is 28 per cent above the 50 DMA and 42 per cent above the 200 DMA. The moving average ribbon is also in an uptrend and has acted as support in the current uptrend. The weekly RSI is in a strong bullish zone and the MACD is showing strong bullish momentum. The Elder Impulse System has formed strong bullish bars. The stock has cleared all the resistances and is trading well above the Anchored VWAP and Ichimoku cloud. The KST and the TSI have been in a bullish setup. In short, the stock has broken out of a bullish pattern with massive volumes. Buy this stock above the ₹100-105 zone. Maintain stop loss at ₹89. The short-term to mediumterm target is ₹118-130.
 

(Closing price as of June 26, 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.