NIFTY Index Chart Analysis

As we expected earlier, the Nifty was unable to sustain above the breakout level. It came back to the previous support range. The negative divergences are still persisting and all the indicators are suggesting some more downside in the market. When the Nifty made a new life-time high, the Midcap and Smallcap indices had not participated in the rally. At the same time, the declines were outnumbered by advances for the past few days. There are many other fundamental reasons for this decline. The rupee has once again reached near the Rs. 69.81 level against the dollar. The crude oil has bounced to six-month high. At the same time, the direct tax collection has fallen short of the government’s target. Apart from all these factors, the market is trading at a historical high PE. The earnings for FY19 are not so encouraging as to boost the market to newer highs.

Technically, Nifty has breached the 13-EMA for the first time after February 20. It also clossed below the 20-SMA and the Bollinger Bands are contracting for the last two days. In any case, if Nifty falls below the 11,550-11,540 zone, the lower low will be reached. Almost three-point correction is sharp enough to discourage the bulls. The leading indicator is clearly forming the lower tops and lower bottoms and fell to level 53. Historically, on the daily chart, Nifty took support at the 40-45 zone of the RSI. Let us watch whether it will hold or not this time. The MACD histogram is increasing since last three days, suggesting the downward momentum is picking up. Another important price action is, with the the sharp fall in the last three days, the Nifty came into the upward channel. Since March second week onwards, it is oscillating upper trendline of the channel. The leading sectoral index, the Bank Nifty, formed a double top on the daily chart and closed below the confirmation point today. This is going to create serious repercussions in the market. 

Generally, the double top pattern at the target is at least 61.8 per cent of the prior swing. In that case, the Bank Nifty targets are open to 28,325. Another 1200-point correction from current level means the Nifty will also correct in a similar manner. In any case, if Nifty falls below 11,540 level, the next short term support level is at 11,380. The worse case scenario is that it can fall up to 11,200-11100. 

On the upside, the bulls need to move above the 11,760 level to continue the rally. The bulls need to push from the earnings of large caps to sustain the rally. On the weekly chart, on March 31 weekend, Nifty formed a long-legged Doji. It is unable to close below the long-legged Doji, but it formed a bearish engulfing. Even the bearish engulfing also did not get any confirmation. Last week, with just three trading sessions, Nifty reached another life-time high with a range breakout on the daily chart. With just another four trading sessions left for the month of April, the Nifty is forming a bearish shooting star. On April 30, in case Nifty closes below 11665, it will lead to formation of a shooting star or a Doji. With this scenario, one must be cautious about the bull side of the market. Just another 30 days to go for Lok Sabha results, traders would adopt cautious approach or most of them may try to book profits. The next four days of price action is crucial for the future direction.

STOCK RECOMMENDATIONS

MINDA INDUSTRIES ........................ BUY ...................... CMP Rs. 382

BSE Code : 532539
Target 1 .... Rs.460
Target 2 ..... Rs.510
Stop loss....Rs.345(CLS)

Minda Industries Ltd (MIL) is a diversified auto ancillary company manufacturing products such as switches, horns, lights and others. With 67 per cent market share, it is the market leader in switch business. Technically, 50-DMA just crossed over the 200-DMA, which is called a golden crossover, and is a long term bullish signal. Also, it has broken out of inverted head and shoulders pattern. The price is making higher highs and a higher low on the weekly chart, which is a clear sign of an uptrend. The MACD is above the zero line and the signal line. The MACD histogram suggests that the momentum is increasing on the upside. Last week, the volumes recorded were above 50-week average, which is a sign of accumulation. It is meeting all the CANSLIM criteria, except group rank. Its price strength (RS) is 85 and EPS strength is 89. The institutions increased their stake by 3.46 per cent, which shows the demand for the stock. Fundamentally, its ROE was 22 per cent and its average sales growth was above 40 per cent and EPS growth was 20 per cent. With technical and fundamental parameters, the stock looks attractive at the current level. Buy this stock at the current market price of Rs.382 with a stop loss of Rs.345. The targets are Rs.460 and Rs.510.

GRANULES INDIA ............................ BUY ..................... CMP Rs. 115.40

BSE Code : 532482
Target 1 .... Rs.135
Target 2 ..... Rs.148
Stop loss....Rs.104 (CLS)

The Hyderabad-based Granules India is a leading generic pharma company. The company’s the major part of revenues comes from North America and Europe. Its sales are growing at an average pace of above 40 per cent and EPS is growing at 40 per cent. Technically, it is coming out of 32-week cup and handle formation and it is near to the pivot level. The stock is also trading above the long term moving averages. The golden crossover happened four weeks ago. The cup depth is almost 36 per cent. The MACD is also above the zero line and the signal line. The histogram is suggesting a strong momentum. The institutional investors increased their stake by 23.68 per cent in the March quarter, which shows that the stock is in demand and accumulation is happening. It is meeting almost all the CANSLIM criteria, except ROE. Buy this stock at CMP of Rs.115.40. with a stop loss of Rs.104. The targets are open towards Rs.135 and Rs.148.

(Closing price as of Apr 23, 2019)