NIFTY Index Chart Analysis

The Union Budget has introduced several proposals that will affect the investment gains. They mark an increase in LTCG and STCG along with the STT for futures and options. Historically, whenever the government has increased the capital gain taxes, the market has reacted negatively. The equities reacted sharply soon after the budget proposals but recovered by the end of the day. The Nifty is trading below the previous week’s shooting star candle and indicates potential for reversal if it closes below 24,504 by the end of the current week.

Nifty closed at a very crucial support of 8 EMA for the second day. On a budget day, which can give a directional bias to the economy and markets, Nifty has given weaker and shaky signals in all the timeframes. It formed a shooting star last week and was trading below a sizeable bearish candle on the daily chart. On an hourly chart, the moving average ribbon is in the downtrend. Nifty closed at the rising wedge pattern’s resistance line on the monthly chart. Several times, Nifty has formed this kind of bearish pattern in history, just before a major correction.

Since the last two years, the index has not witnessed any major corrections. Apart from the price patterns, the major indicators are in the extreme zone and indicate a probable correction. On the monthly chart, Nifty had formed a rising wedge pattern after the 2014-19 period of a bull run. In the rally from the low of March 2020 and to date, the rising wedge pattern is clearly visible. Earlier, Niftydeclined sharply because of the corona virus pandemic worldwide. Currently, it is trading at the resistance of this bearish pattern.

The monthly RSI reached above the extreme 80 zone. In the past, in 2008 and 2015, it reached above 80 and was significantly corrected by 64.56 per cent and 25.15 per cent, respectively. In October 2021, the RSI reached the 79.45 zone and the index corrected by 18.39 per cent. Though the RSI did not reach the 80 zone in 2019, it formed a negative divergence. The 2009, 2015 and 2016- 2019 bull runs were steady at about 45 degrees. This strong uptrend did not witness major corrections because of their degree of rise.

The rally from the 2020 low is impulsive, with one major correction of 18.39 per cent during 2021-22. Usually, the impulsive trends undergo a countertrend consolidation. At the same time, Nifty had Category 2 corrections of over 13 per cent every two years. The two-year cycle is due now. With this evidence, the probability of a major correction is high. If the correction begins, Nifty may test the zone of 21,350-21,800, which implies a 10-13 per cent correction.

On the daily chart, the index formed a bearish candle last Friday and traded below that candle for the last two days. It escaped the distribution day on Friday and on budget day as the volume was a little less than the previous day, and the fall is limited to less than 0.25 per cent. The MACD has given a fresh bearish signal after June 4. The RSI sharply declined to 63.32 from 77.49, which shows a significant change in momentum.

The index must close below 24,504 at the weekend for a confirmed reversal signal. The 20 DMA support is placed at 24,311, and the 50 DMA is at 23,460. On the other hand, Nifty sustaining above the level of 24,600 would be positive and we may see a new all-time high above 24,855. As the index looks overstretched, it is better to avoid fresh long positions. Once the dust settles, Nifty will form a base in the counter-trend and wait for a breakout to take fresh long positions.

STOCK RECOMMENDATIONS

BALU FORGE INDUSTRIES .................... BUY .................... CMP ₹409.95
BSE Code : 531112
Target 1 .... ₹484
Target 2 ..... ₹530
Stoploss....₹365 (CLS)

The company was set up in 1989 by Prehlad Singh Chandok as a proprietary firm. In August 2020, it was acquired by Amaze Intertech Limited and converted into a listed entity by the name Balu Forge Industries Ltd. (BFIL). It is based in Mumbai and manufactures various types of crankshafts in a large range of applications for such sectors as automotive, agricultural, marine and industrial in Karnataka. It is promoted by Jaspal Singh Chandok, Trimaan Chandok and Jaikaran Chandok who look after the overall business operations of the company.

The stock is trading near an all-time high and registered a bullish breakout five weeks ago. It has been in counter-trend consolidation for the last two weeks. Its relative strength line is at a new high, showing an outperformance compared to the broader market. It is trading above all the long-term and shortterm moving averages with all the moving averages in an uptrend. It is 43.94 per cent above the 40-week average and 14.69 per cent above the 10-week average. The weekly MACD is showing strong bullish momentum. The RSI is in a strong bullish zone. The KST has been in a bullish setup. Its relative performance line is above the 21 EMA. The stock is above the Ichimoku cloud. In short, the stock is trading near an all-time high. Buy this stock in the zone of ₹400-410. Maintain a stop loss at ₹365. The shortterm to medium-term target is placed at ₹484-530.

PC JEWELLERS LIMITED ........................ BUY ..................... CMP ₹70.63
BSE Code : 534809
Target 1 ..... ₹88
Target 2 .... ₹105
Stoploss....₹55 (CLS)

Established in 2005, Delhi-based PC Jewellers (PCJ) manufactures, and retails and exports jewellery. The product range includes gold, diamond and other jewellery and silver articles. The company focuses on providing an unparalleled jewellery buying experience with easy returns, free shipping, certified jewellery and transparent pricing. With a young team dedicated to innovation and customer satisfaction, PC Jewellers meets the needs of today’s on-the-go consumers.

The stock has hit a new 52-week high. For the last two days it has recorded above-average volume. Two weeks ago, it broke out of a 24-week cup pattern with a massive volume. Its relative price strength is at 85, and the new high shows an outperformance compared to the broader market. Its relative performance line is above the 21 EMA. The stock is trading above all the key moving averages. All the long-term and short-term averages are in an uptrend. The stock is 46.75 per cent above the 40-week average and 29.74 per cent above the 10-week average. The weekly MACD histogram shows an increased bullish momentum. The RSI is in a strong bullish zone. It is above the anchored VWAP resistance and above the Ichimoku cloud. The Bollinger bands have begun to expand, indicating more upside in the stock. The KST is about to give a bullish signal. The Stochastic RSI has been in a bullish setup. The stock is also trading above the 61.8 per cent retracement level of the prior fall. In short, the stock has transitioned into Stage II. But this stock is above the ₹68.50-75 zone. Maintain a stop loss at ₹55. The shortterm and medium-term targets are at ₹88 and ₹105.

*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 July 23, 2024)

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.