NIFTY Index Chart Analysis

The benchmark index, the Nifty, has been seen taking a pause in the current week after four successive weeks of higher high closings. Last week, it formed a shooting star like a candlestick pattern on the weekly timeframe. In the last eight days, the index has registered two distribution days. Even though there are no bearish signals available, the price pattern looks tired and exhausted. With Friday’s massive fall in volume, the momentum indicators declined from the extreme levels or overbought conditions. All the bearish patterns in recent history have failed, including a strong bearish grip. 

Unless the current bearish candle, shooting star, gets a confirmation, we cannot change the directional bias on the downside. Six weeks ago, the Nifty broke out of an 85-week ascending triangle with a below-average volume. The ascending triangle breakouts typically lead to an impulsive move. Post breakout, the Nifty rallied by 7.5 per cent. The current upside move is 3,163 points or 18.80 in just 17 weeks. This is equal to the October 2021- June 2021 correction of 18.35 per cent. The current rally is more impulsive as it was achieved in just 50 per cent of the major correction time. The current rally is extended by just over 85 per cent of the prior upside swing. This is one of the most impulsive rallies in the recent history of Nifty. 

The pattern target – the 100 per cent extension – is placed at 20,525. Because of its impulsive nature, it has distanced too far from the mean average (20 DMA). Whenever the Nifty moves more than 5 per cent away from the 20 DMA, it tries to reverse to the mean level at 19,372. Retesting of a pattern breakout is also a normal phenomenon. If the Nifty decisively closes well below the previous week’s low of 19,562, the index can test the 20 DMA of 19,472. In case of retesting of a breakout or pullback, the price will retrace about 38.2 per cent of the prior rally.

In other words, if Friday’s correction continues for more than three days, it may test the level of 18,783. It is also near to the breakout level. In a bull case scenario, if the pattern (shooting star) fails to get a confirmation for its implications, we will see the extension of the rally towards the 100 per cent target of 20,525 sooner than expected. To achieve this, it must not close below the prior weekly low and must continue to move higher above the previous week’s high. We cannot project more than this for now on the upside. The risk-reward is 1:1 on both sides as we are expecting the Nifty to move in the range of 18,783-20,525. 

This 1,742 points’ range is the highest probability for the Nifty in the near term, and we are precisely in the middle range now. On Friday, post-market, Reliance Industries, Kotak Bank and Tata Steel announced disappointed earnings and the ITC demerger news did not attract a positive response from market participants. Last week, the India VIX declined to 10.57, which is at a historically lower band. The Nifty price-earnings ratio advanced to above 24 at a one-year high. It is just below the two-year average. The price to book (PB) value ratio is at a 12-year high of 4.8. There is more evidence of the markets being in the overvalued zone. In harsh words, the market is fundamentally in a bubble territory. 

There is no sector in a position to lead the market. The Nifty IT index registered another failed breakout of a one-year consolidation of Stage 1. The poor earnings from Large-Cap and industry leaders led to this failure. The Bank Nifty and PSU Bank indices also entered the lagging quadrant, showing the leader losing its momentum. The FMCG index sharply lost its relative pace in the weakening quadrant. After a decade-long consolidation breakout, the realty index lost momentum. Even the Nifty Auto index is making new highs but switching into a lower gear with it being in an overbought condition. In the current scenario of fundamentally overvalued and technically over-extended stocks, it is better to take profits off the table. We must be cautiously optimistic if it trades above the prior week’s low.

STOCK RECOMMENDATIONS

BLS INTERNATIONAL SERVICES LTD ............... BUY ........... CMP ₹215.60
BSE Code : 540073
Target 1 .... ₹262 
Target 2 ..... ₹280 
Stoploss....₹200 (CLS)

This is a technology-enabled service partner for governments and citizens. The company is one of the top two players in visa, passport, consular and citizen services and is a leading player in delivering comprehensive solutions in various areas, including e-governance, attestation, biometrics, e-visa and retail services. It collaborates with over 46 government clients, including diplomatic missions, embassies and consulates. Its operations have scaled up across 64 nations, with a global footprint spanning more than 50,000 centres worldwide. The company’s network is supported by nine global training centres and four global contact centres, further enhancing its capabilities in delivering top-notch consular, biometric and citizen services. BLS International has processed over 220 million applications as of date. Technically, the stock broke out of a 28-week consolidation (cup) two weeks ago with above-average volume. It has been consolidating for the last two weeks. Its relative strength (RS) line is at a new high, showing strong outperformance. It is trading just 3 per cent above the breakout level, which is an ideal buying zone. The stock is trading well above the key moving averages. It is 10.32 per cent above the 50 DMA and 22.01 per cent above the 200 DMA. All the moving averages are in an uptrend in a desired sequence. The daily RSI is taking support at the zone of 60and rising, and the weekly RSI is in a strong bullish zone. The MACD shows a strong bullish momentum. The Elder Impulse System has formed bullish bars. As the stock is trading near a pivot, it has cleared the resistances. The KST and the TSI indicators are in a strong bullish set-up. In short, the stock is in an ideal buy zone after the breakout. Buy this stock in the range of ₹210-225. Maintain a stop loss at ₹200. The short-term to medium-term target is placed at ₹262-280.

GARDEN REACH SHIPBUILDERS & ENGINEERS LTD ......... BUY .......... CMP ₹601.90
BSE Code : 542011
Target 1 ..... ₹700 
Target 2 .... ₹742 
Stoploss....₹572 (CLS)

This is a shipbuilding company operating under the aegis of the Ministry of Defence. The company primarily caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. It is also engaged in engineering and engine production activities. The engineering division manufactures deck machinery items, pre-fabricated portable steel bridges and marine pumps. Its shipbuilding division contributes a significant majority of its revenue from operations. In the last five decades, it has built. It has built and supplied more than 750 vessels to carry men and materials and to monitor the coastline. Technically, the stock is trading at the prior pivot level. After breaking out of 26-week consolidation, it has traded in a tight range for the past six weeks. It negated all the bearish and indecisive bars implications with the current week’s move. Its relative strength (RS) line is at a new high, showing outperformance compared to the broader market. The stock is trading 28.67 per cent above the 200 DMA and 14.71 per cent above the 50 DMA. The shortterm and long-term moving averages are in a sequence. The daily 14-period RSI took support at 60 and bounced, which is a good sign. The weekly RSI closed above the prior high and negated the bearish divergence implications. The MACD shows strong momentum. The stock is in a leading quadrant with strong momentum and relative strength. Currently, the stock is trading at 61.8 per cent at extension levels of the prior upswing. The Elder Impulse System has formed strong bullish bars. As the stock is trading at a pivot level, it has cleared all the resistances. In short, the stock is in a strong bullish trend. Buy this stock above in the zone of ₹620-637. Maintain a stop loss at ₹572. The short-term to medium-term target is placed at ₹700-742. 

(Closing price as of July 25, 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.