NIFTY Index Chart Analysis

The Nifty has finally ended its eight days of a winning streak and entered a phase of counter-trend consolidation. After forming a new all-time high last Friday with intense profit booking, the Nifty has formed a big bearish bar. It tested Monday’s close and formed a shooting star candle or an inverted hammer on the weekly chart. This candle formation opened negative implications after a rally of 877 points in just eight days. In fact, the index has given up 50 per cent of the weekly gains. This kind of price pattern, at an all-time high, indicates a potential pause in the trend, and if the profit booking is more intense, it could also lead to a reversal. 

As long as this candle high is not taken out, we can assume that 19,524 is a top for the near term. If the Nifty closes below the level of 19,200 and fills last Monday’s gap, the shooting star candle will get a confirmation for its bearish implications. As we suspected earlier, the over-extension of a rally finally brought the price back into the Bollinger bands. The 220 points’ decline from the all-time high on the weekend signals many outcomes. The index reacted to the rising channel resistance after registering a failed rising wedge pattern breakdown in the previous week. Thursday’s strong bullish candle that led to a fresh breakout of an inside bar failed as the index closed below the two-day low.

Still, no strong bearish signals have emerged yet, but many exhaustion signs are available. On the daily chart, in Friday’s session the Nifty has formed an outside bar and a shooting star candle, again a warning signal to the bulls. The RSI and MACD do not show any divergences. The earlier negative divergences were negated last week as the index rallied sharply. Interestingly, the Nifty’s Relative Strength (RS) has not improved even after a series of new all-time highs. The Mansfield Relative Strength indicator is still below the zero line. The RS line is still below 100 on the RRG chart.

This underperformance is because there are not many leading sectors and it is highly stock-specific. All the major sector indices like those of pharmaceuticals, banking, finance and IT are in the lagging quadrant. Last week, Mahindra and Mahindra, Tata Motors, Bajaj Twins and Reliance gained by 3-7 per cent and contributed significant gains. The automotive, consumer durables and realty sectors are losing momentum, even though they are in the leading quadrant. Currently, the Nifty is trading about 2.03 per cent above the 20 DMA – the gap earlier was above 3 per cent. The expansion of Bollinger bands has stalled for now as the lower band is rising. The 20 DMA has acted as support since March 31. 

All the impulsive rallies have to revert to the mean i.e. 20 DMA. The RSI declined below its nine-period average and this is a first sign of losing momentum. Even though there is no bearish signal available currently, the momentum is slipping fast. If the index closes below the level of 19,200, the shooting star candle will get a confirmation for its negative implication. Last Monday’s (July 3) gap-up is very crucial because it is not only a weekly gap-up opening but also a monthly one. There have been several gap-up openings since March 31, and none of them were filled. If the index fills the recent gap decisively, it means the 2,583 points or 15.25 per cent rally is ended. 

Technically, the gap-ups are an indication of trend strength. The gap areas also act as supports. Interestingly, during the countertrend phase of this upswing the dips have not exceeded more than three trading sessions. In any case, a decline of more than three days will also confirm a reversal. In a nutshell, a close below 19,200 and a fall for more than three trading sessions will confirm the reversal of the trend. We need to be very selective. There is a higher probability of counter-trend consolidation or testing of 20 DMA support that is below the gap area and so it is better to keep booking profits in leading stocks. Protecting the profits with strict risk management principles would be a wise action plan.

STOCK RECOMMENDATIONS

BHARAT WIRE ROPES LTD ....................... BUY .................. CMP ₹192.10
BSE Code : 539799
Target 1 .... ₹220 
Target 2 ..... ₹236 
Stoploss....₹178 (CLS)

Bharat Wire Ropes manufactures Steel Wire, Wire Ropes, Strands and Slings. The company has a diverse product mix which includes General Purpose Ropes, Fishing Ropes, Crane Ropes, Structural Ropes, Elevator Ropes, Mining Ropes, Oil & Gas Ropes, Shipping Ropes, Mechanically Spliced Slings, Hand Spliced Slings, Earth Wires, Stay Wires, Guy Wires and Spiral Strands. It has two manufacturing plants, one in Atgaon, Maharashtra, with a capacity of 6,000 MTPA and one in Chalisgaon, Maharashtra, with a capacity of 66,000 MTPA. The wide range of products meets the functional needs of various industrial applications such as General Engineering, Aviation, Fishing, Elevators, Cranes, Material Handling, Onshore/ Offshore Oil Exploration, Ports & Shipping and Mining. The company exports its products to over 50 Countries, including Australia, the Middle East, Nepal, New Zealand, the UK, the US, Singapore, South Africa, Vietnam and many more. Technically, the stock is breaking out of a six-week tight flat base. Its relative strength line is also at a new high, showing an outperformance compared to the broader market. The stock is trading above all short and long-term moving averages and is currently 10.11 per cent above the 50DMA and 45.70 per cent above the 200DMA. The MACD is above the signal line, and the histogram shows an increased bullish momentum. The RSI is in a strong bullish zone, while the Mansfield Relative strength is well above the zero line and shows a better strength in the trend. As the stock is trading at a new high, it cleared all the resistances and is well above the Ichimoku cloud and monthly VWAP. In short, the stock has broken out of a base. Buy this stock above ₹190-193 zone. Maintain a stop loss at ₹178. The short to medium-term target is placed at ₹220-236. 

CG POWER & INDUSTRIAL SOLUTIONS LTD ......... BUY ............. CMP ₹388.20
BSE Code : 500093
Target 1 ..... ₹452 
Target 2 .... ₹483 
Stoploss....₹352 (CLS)

CG Power and Industrial Solutions is an engineering conglomerate with a diverse portfolio of products, solutions and services for Power and Industrial equipment and solutions. The company has been a pioneer and has a leadership position in the management and application of electrical energy. It has manufacturing facilities in nine countries. The product portfolio ranges from transformers, switchgear, circuit breakers, network protection and control gear, project engineering, HT and LT motors, drives, Power Automation Products and turnkey solutions in all these areas. It has three strategic business units, industrial, power, and Railways. Technically, the stock has been trading in a tight base for the last six weeks. It is in a strong uptrend as the price moves in a staircase manner and has never broken the 40-week average since July 2020. Now it is trading well above all medium-term averages. The stock is currently trading 7.74 per cent above the 50DMA. All moving averages are in an uptrend. Its price relative strength line is at a new high, showing an outperformance compared to the broader market. The Mansfield relative strength indicator is also sustaining above the zero line since August 2020, showing that the stock is in a strong uptrend. The RSI is in a strong bullish zone, and the MACD is above the signal line, showing bullish momentum. The stock is well above the monthly VWAP and above the Ichimoku cloud, with all momentum indicators in a bullish set-up. In short, the stock is trading near the pivot and with strong momentum. Buy this stock in ₹385-400 zone, while maintaining a stop loss at ₹352. The short to medium target is placed at ₹452-483.

(Closing price as of July 10, 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.