NIFTY Index Chart Analysis

As forecasted in the last column, the market has largely consolidated in the zone. The consolidation above the 19,500 support zone is expected, as it tested four times in the last two weeks. The pullback has ended at a 50 per cent retracement level of the prior downswing. The Nifty has formed a bullish candle on the weekly chart by closing above the previous week’s high. It mostly moved in the zone of 19,480- 19,766 for the last three weeks. Either side of this zone will give directional clues. 

Even though the Nifty recovered smartly from the lows last Friday, the price structures show exhaustion. Considering the moves of Wednesday and Thursday as evening stars, the gap down open and close below Thursday’s low confirms the pattern’s bearish implications. A 0.22 per cent decline with higher volume in the last seven days meets the distribution day criteria. Currently, the Nifty holds five distribution days in the last 25 trading sessions. 

In any case, increasing distribution days and closing below the 50 DMA (19,607) will change the market structure into a trend under pressure. For a confirmed downtrend, the bears need to drag the Nifty below 19,333 decisively. In such a case, the index will form a swing low. Thursday’s high of 19,843 can be considered a lower high, as we believe the pullback is done. The Nifty took support at a 20-week average in the previous week and bounced. Currently, it is placed at 19,387, which will act as a crucial support. 

Interestingly, the 20 DMA entered into a downtrend, which is a short-term negative. The upper Bollinger band is also falling, and the lower band is flattened. This indicates that the upside potential has very low chances. The equity market will consolidate as long as the 19,333-19,387 zone of solid support is protected. The India VIX is back to the 10.62 levels. During the previous week, it showed volatility of 20 per cent. It rose by 3.08 per cent last week, but it is very near to the historical low of 10.14. The collapse in VIX has been more in the last five sessions and it has hit the historical lowest range. This precariously low range of VIX is not good for the market. The equities are vulnerable to sharp moves. In the previous weeks, the spurt and collapse in VIX have given cautionary signals. If it declines below 10, it means we are inviting an unexpected storm. Last Friday, the CBOE VIX was sharply up by over 20 per cent, signalling a serious signal for the global markets. But, on Monday it collapsed by 10 per cent. This swing of volatility in the global and Indian VIX is something weird. The fear factor in the global markets is at its peak. The reason is that the conflict between Israel and Gaza can spread to many more countries, influencing the economies. 

On Friday, a heavy volume volatile move in the global and domestic market hinted at more volatile days. The low VIX regime remains a concern for a trending market. Expect more intense profit-booking bouts frequently. On the indicators front, the daily RSI is still in the neutral zone and failed to move above 60 during the pullback. The MACD on the zero line does not show any strong momentum on either side. Any further upside above 19,843 will face strong resistance in the gap area of 19,880. Expect more consolidation in the zone of 19,333-19,883. The month of October is normally bullish. 

In the last five years, the Nifty never closed below its opening in October. Out of 10 years, it closed above the open in nine years. In 15 years, 73 per cent of the time, and in the last 20 years, 70 per cent of the time, it closed higher than it opened. This October, Nifty opened at 19,623. History says there is the highest probability of closing above 19,623 on October 31. With this historical data, we can assume that the Nifty will continue the consolidation phase even in the second half of this month. Be with neutral to bearish bias as long as it trades below 19,883. Stay cautious, and be vigilant on leveraged positions.

STOCK RECOMMENDATIONS

DEEPAK FERTILISERS AND PETROCHEMICALS CORP. LTD. .... BUY ... CMP ₹683.80
BSE Code : 500645
Target 1 .... ₹745 
Target 2 ..... ₹787 
Stoploss....₹620 (CLS) 

Deepak Fertilisers and Petrochemicals Corporation Ltd. (DFPCL) is a leading producer of fertilisers and industrial chemicals. The company has a strong presence in technical ammonium nitrate (mining chemicals), industrial chemicals and crop nutrition (fertilisers). Its plants are located in four states, namely Maharashtra (Taloja), Gujarat (Dahej), Andhra Pradesh (Srikakulam) and Haryana (Panipat). Its enhanced-efficiency speciality fertilisers are developed on the basis of rigorous research and development efforts and product trials at over 50,000 farmer demonstration plots. Technically, the stock is forming a Stage base and trading near the pivot level. After declining over 51 per cent from its lifetime high, the current base is in the transition to Stage 2. The stock is above the long-term averages. It is trading 13.39 per cent above the 40-week average and 8.94 per cent above the 10-week average. Both the averages are in an uptrend. Its price relative strength is also improving. The Mansfield relative strength indicator is near the zero line and rising. The weekly 14-period RSI has just shifted its range into a strong bullish zone. The MACD line has moved above the zero line, and the histogram shows an increased bullish momentum. It cleared the Anchored VWAP resistance this week. The Elder’s Impulse System has formed bullish bars. The KST and TSI indicators have been in a bullish set-up. The stock is also above John Ehlers MAMA, FAMA, and KAMA bands. In short, the stock is near the pivot and ready to register a breakout. Buy this stock above ₹678. Maintain stop loss at ₹620. The short to medium-term target is from ₹745 to ₹787. 

PITTI ENGINEEERING LTD. ................... BUY ....................... CMP ₹686.00
BSE Code : 513519
Target 1 ..... ₹780 
Target 2 .... ₹810 
Stoploss....₹637 (CLS) 

Pitti Engineering Limited manufactures electrical steel laminations, sub-assemblies for motor and generator cores, die-cast rotors, machined cast, and fabricated parts and shafts. The company supplies a wide range of products to vastly diversified end-user segments, including freight rail, passenger rail, mass urban transport, hydro and thermal generation, windmill, mining, cement, steel, sugar, construction, lift irrigation, appliances, medical equipment, oil and gas and other industrial applications. Broadly speaking, the company’s products find a suitable application in almost every rotating electrical equipment. Technically, the stock has broken out of a six-week base. For the last two weeks, the volumes were higher, showing demand for the stock. Its relative strength is as high as 93, showing a strong outperformance compared to other listed stocks. It is trading well above the long-term averages as the stock has formed a new lifetime high. The stock is trading 67.36 per cent above the 40-week average and 12.77 per cent above the 10-week average. The 10-week average has acted as support in the base formation. The MACD and RSI are in a strong bullish mode. As the stock is in uncharted territory, it has cleared all the resistances. The KST and the TSI indicators are in a strong bullish set-up. The stock has extended 38.2 per cent of the prior upswing. In short, the stock has registered a strong bullish breakout. Buy this stock in the ₹680-700 zone. Maintain stop loss at ₹637. The short-term to medium-term target is from ₹780 to ₹810.

*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 October 17, 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.