NIFTY Index Chart Analysis

Nifty, the benchmark index, is at a new high. Last month, the domestic fund’s massive inflow of ₹48,278.65 crore fuelled the equities to a new high. The index broke out of a five-week consolidation base with above-average volume last week. With just one distribution day, the index looks very strongly bullish, and all the dips were bought in. During the last 14 days, the index has been making higher high candles, which shows strength in the trend.

Last week, the index registered all five positive days, and over the previous three weeks, it has been closing above the prior week’s highs. This shows a convincing trend strength. However, the index looks overstretched as it has been forming indecisive and bearish bars for the last three days, and the indicators are in the extreme zone on long-term charts. Nifty has formed a hanging man candle on a monthly chart in August, indicating exhaustion and vulnerability to mean reversion.

If the price moves too far from the mean, it must come to the mean level. Currently, the index is trading 6.13 per cent above the 20-week average, and the Bollinger bands are expanding. The five-week consolidation has given a fresh long opportunity.

The impulsive move is because the index oscillated around the 20-week average for 18 weeks during the January-June period. Any prolonged congestion will lead to a sharp move. Before the 18 weeks of range-bound activity, the index had experienced an upside sharp move for nine weeks. In fact, the index has met the 100 per cent Fibonacci extension target of the prior swing and formed a base.

Currently, the Nifty has formed a 53-month rising wedge pattern. During 2016-2020, the rising wedge was 61 months old and formed two bearish divergences in the monthly RSI. The result of these two divergences was due to the crash caused by the pandemic. The present rising wedge holds one bearish divergence. However, there are several negative divergences on the weekly and daily charts. The monthly RSI is at 82.02, which is a highly overbought zone.

In the past, whenever it has reached above 80, the market has corrected significantly. The daily RSI has not formed a new high, even though the price made a new high, which is a bearish divergence. Even the MACD line has formed a bearish divergence. These major indicators were lower highs, while the prices made new highs. With the above evidence, the market looks overstretched, and it is due for two-cycle corrections.

A reasonable correction can be expected in the near future. Our target of 25,056 has already been met. Any corrections that occur may be sharper. The previous week’s low of 24,874 is a crucial support level at present. The 10-week average is at 24,715. If the index can maintain this support zone, cautious optimism is warranted. However, a close below 24,874 would be a negative sign and could lead to a test below 24,000. The 20-day average at 24,593 is also a critical support level.

Technically, the Nifty has formed two consecutive bearish candles at the new high. On Friday, it recorded a massive volume, which is a sign of distribution. The volumes were highest after June 4. The last two hours of selling pressure on Friday indicate something negative for the next two weeks. It is better to stay with a low position size. In any case, if the index opens with a gap down, it will confirm the short-term top made at 25,333.65.

The RRG charts show the Nifty IT, Pharma and FMCG indices in the leading quadrant with strong momentum and relative strength. The sector’s stocks will outperform in the near term. Oil and gas have entered the improving quadrant with strong momentum. The sector stock may be in the limelight next week. The media index is in the improving quadrant but is losing momentum. All the sector indices are losing their momentum.

STOCK RECOMMENDATIONS

TILAKNAGAR INDUSTRIES ............................ BUY ............ CMP ₹301.95
BSE Code : 507205
Target 1 .... ₹355 
Target 2 ..... ₹375
Stoploss....₹260 (CLS)

Founded in 1933 as Maharashtra Sugar Mills Ltd (MSML) to manufacture sugar and allied products, Tilaknagar Distilleries and Industries Ltd (TDIL) was established as a 100 per cent subsidiary of MSML for the production of industrial alcohol, IMFL, and sugar cubes. After MSML exited the sugar business, TDIL merged with MSML and was rebranded as Tilaknagar Industries. In fiscal 2020, the company reached a One-Time Settlement agreement with three of its lenders for an outstanding debt of ₹668 crore, which was settled for ₹213 crore. The remaining loan of ₹523 crore was transferred to Edelweiss ARC (EARC), and restructured into sustainable debt of ₹345 crore, with the balance debt of ₹178 crore.

Technically, the stock has demonstrated a strong uptrend over the past year, with consistently higher highs and higher lows, indicating a bullish trend. Recently, the price broke above a resistance level near ₹288-290, suggesting a potential breakout. This breakout is supported by a surge in volume, adding credibility to the upward movement. Higher volume on up days points to strong accumulation by buyers. The stock is trading above key moving averages, reinforcing the overall bullish momentum. The MACD line is above the signal line, a bullish sign, with the MACD histogram showing increasing green bars, indicating strengthening upward momentum. Buy this stock with a target of ₹355-375, placing a stop loss at ₹260.

HINDUSTAN UNILEVER LTD. .................... BUY ................ CMP ₹2,793.90
BSE Code : 500696
Target 1 ..... ₹2,900 
Target 2 .... ₹2,950 
Stoploss....₹2,740 (CLS)

Hindustan Unilever (HUL) is India’s largest FMCG company, with a diverse portfolio that includes soaps, detergents, personal care products, and food and beverages. The company operates multiple factories and outsourced production facilities across India.

In the 1990s, HUL expanded through acquisitions, including the merger with Pond's India Ltd in 1998 and the acquisition of the Lakme brand in 2008. In 2016, HUL acquired the Kerala-based hair oil brand Indulekha, strengthening its presence in southern India. More recently, in January 2023, HUL acquired a 51 per cent stake in Zywie Ventures (OZiva) and a 19.8 per cent stake in Nutritionalab (Wellbeing Nutrition) to enter the health and wellbeing direct-to-consumer (D2C) space.

HUL’s stock has been in a prolonged consolidation phase, forming a symmetrical triangle pattern on the weekly chart. A recent breakout above the upper resistance line around ₹2,741-2,755 signals the potential start of a fresh upward trend. This breakout suggests buyers are gaining control, turning the previous resistance into support. The stock is trading above its 20, 50, and 200-day moving averages, all of which are trending upward, indicating strong bullish momentum. The MACD line is above the signal line, with increasing green bars on the histogram, further supporting a bullish outlook. Buy this stock with a stop loss of ₹2,740 for an upside move towards ₹2,900-2,950.

*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 03, 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.