NIFTY Index Chart Analysis

The Nifty has formed a bearish engulfing candle on a monthly chart. The index snapped its five-month rally by declining 500 points in August. Interestingly, it also ended the five-week losing streak last week. Historically, the Nifty has very rarely registered more than five consecutive negative closings. It closed at the 10-week average. Last week, it traded in a 234.9 points range and finally closed with 169.5 points’ gains. The Nifty has mostly traded in the zone of 19,250- 19,500 for the past 10 days. It formed a base after a decline of 786 points from its lifetime high. This 10-day flat base is very crucial for future directions.

The 19,250 support holds a solid significance for market direction. It is absolutely essential for the Nifty to reverse the trend. After several attempts, it decisively closed out of the sloping channel. The price action within the flat base is like a double bottom, and the valley point is placed at 19,453. If the Nifty closes above the zone of 19,453-19,483, we may see a more positive sentiment in the index. The August 24 high of 19,584 will be a crucial near-term resistance. To end the current intermediate downtrend, it must close above 19,585 for at least two days. 

The index has to form a higher high and higher low candle to get the first sign of reversal. On the flip side, if the Nifty breaches the solid support of 19,250, we may see a strong dip with increased volatility. It may test the 100 DMA of 18,853. The previous major high is at a similar level of 18,888. It may signify a change in market structure and sentiment and also may lead to a sharp decline. There are at least four gaps in the prior uptrend. These continuous gaps in an impulsive rally will be filled sooner or later. With a strong rebound on Friday, September 1, the Nifty just closed above the 20 DMA and 50 DMA. The 20 DMA is below the 50 DMA.

Except for 20 DMA, all the mediumterm moving averages are in an uptrend. The weekly MACD line and signal lines converge at the same level and are on the verge of a bearish crossover with the histogram narrowing to the zero line. It shows that the market is at a crucial juncture. The daily RSI has been in the neutral zone and tested the 40 zone at least thrice. It has formed a positive divergence, as it makes a higher low. It also closed above its prior highs, which is a positive sign for the short term. Along with the price breakout, if the RSI shifts range into the strong bullish zone, moving above 60 means the flat base lower range, 19,250 is the intermediate bottom. On an hourly chart, it looks like a triple bottom.

As stated in the last column, the IT and PSU stocks did well in the last two weeks. The RRG chart shows that the metal, pharmaceutical, energy and PSU banks have high relative strength and momentum in the leading quadrant. The IT index gained momentum in the improving quadrant. All the other sectors are losing their momentum and relative strength. The outperformance of Mid-Cap and Small-Cap stocks is continuing. Both indices formed highs and higher lows for the last 21 weeks except one week. Interestingly, both are at their lifetime highs. The mid-cap index met about 80 per cent of its ascending triangle breakout target. 

The volatility index, India VIX, is at 11.36 and back to the historical lower range. These low VIX times are unpredictable and negative for a probable uptrend. The next 10 days are crucial for the market. The range of 19,250-19,585 may act as an important support and resistance level. The unscheduled parliament session is an event risk for the markets. Early elections are anticipated to potentially coincide with state assembly elections. Normally, the markets show a subdued performance during the election year. Stay light on leveraged positions and focus on low-beta stocks with higher relative strength.

STOCK RECOMMENDATIONS

SHANTHI GEARS LTD. ........... BUY ........CMP ₹494.90
BSE Code : 522034
Target 1 .... ₹562
Target 2 ..... ₹584
Stoploss....₹462 (CLS)

Shanthi Gears Limited (SGL), a subsidiary of Tube Investments of India Ltd has been a leading player in Industrial Gearboxes with a specialisation of Customised solutions over five decades. Today, through strategic innovations aimed at diversifying its customer segments, the company steadfastly addresses the requirements of multitudes of Industries like Steel, Cement, Thermal and wind Power, Mining, Transportation, Construction etc. The stock has broken out of a 9-week flat base with high volume. The current base has occurred after meeting the 25-week consolidation breakout target in an impulsive way. Its price relative Strength line is at a new high, indicating the outperformance compared to the broader market. It is trading above all key moving averages, and the long-term averages are in an uptrend. It is 9.52 per cent above the 50 DMA and 27.77 per cent above the 200 DMA. For the last three weeks, the volumes were recorded above average, while the weekly MACD has given a fresh buy signal. The RSI is in a strong, bullish zone and the stock is trading in uncharted territory by clearing all the resistances. It is well above the Ichimoku cloud while the Elder's impulse system has formed strong bullish bars. All the momentum indicators are in a bullish set-up. In short, the stock has broken out of a flat base on the weekly chart and is trading just over one per cent above the pivot, which is the ideal buy zone. Above ₹500, the stock has the potential to touch levels of ₹562 in the short term, and the medium-term target is ₹584. 

NAZARA TECHNOLOGIES LTD. ................. BUY .................. CMP ₹835.00
BSE Code : 543280
Target 1 ..... ₹904
Target 2 .... ₹984
Stoploss....₹762 (CLS)

Nazara is India's only listed gaming and esports company with majority ownership of a number of leading gaming and e-sports brands with a presence in India, the US and other global markets. In e-sports, Nazara has India's leading esports platform Nodwin; PublishME in the Turkey / MENA market; and Sportskeeda and Pro Football Network in the sports media space. Nazara's offerings across the interactive gaming segment include gamified early learning ecosystems Kiddopia and Animal Jam which are global leaders in their respective segments; India's most popular cricket simulation franchise World Cricket Championship (WCC); Classic Rummy in the Indian Real Money Gaming segment; and a wide portfolio of casual games distributed through telco partnerships in many emerging markets. The stock has broken out a 50-week-long consolidation signalling the resumption of up move and offering a fresh entry opportunity. The breakout is supported by a strong volume of more than nine times the 10-day average volume of 6.42 lakh shares per day highlighting larger participation in the direction of trend. The daily 14-period RSI is seen rebounding after forming a base at the nine-period average thus supporting the positive bias. The daily MACD is pointing northward while sustaining above its nine-period average thus validating positive bias in the stock. Buy this stock in the range of ₹812-837 with a stop loss of ₹762 for a short-term target of ₹904 followed by a target of ₹984 in the medium term

*LEGEND: ■ EMA - Exponential Moving Average. ■ MACD - Moving Average Convergence Divergence ■ RMI - Relative Momentum Index ■ ROC - Rate of Change ■ RSI - Relative Strength Index (Closing price as of September 04, 2023)

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.