NIFTY Index Chart Analysis

NIFTY Index Chart Analysis

Think twice about going long on the market!

As we cautioned for the last four weeks, market did not sustain at higher levels and has broken the critical supports on Friday. Nifty ended with loss of 47.35 points, lower by 0.40 per cent, but it has given a lot of clues on the future direction. The BSE Sensex closed with a loss of 163.83 points last week. The broader index Nifty-500 index also lost 0.68 per cent and the Midcap-100 lost 1.22 per cent. The Smallcap-100 was the worst hit, with a loss of 2.08 per cent. The FIIs and DIIs turned to be net sellers in the market this month.

  

Are we heading for a crash in the market? A lot of confluences of market activity point out that we are in a classical distribution phase and Friday’s fall has given many clues on that. We have been mentioning since many days the probability of testing the May 20 gap area. But, in any case, if it does not hold the 11425 level, then we can see a much deeper correction much below the 11000 level. So, be cautious about the portfolios.

Technically, the Nifty closed below the 20-DMA, which is a short term bearish signal. After trading within the range for the last 13 trading sessions, the index just closed below the key support. In fact, Nifty traded within the previous week’s range and moved just 203 points during the whole week with indecision candles on three days. It took support several times at the 11830 level and closed just below this level. Price action-wise, Nifty is moving in an upward channel and has faced resistance at 12100. If we look at the earlier retracements from the resistance, it has retraced twice about 50-60 per cent. Now, the upswing from May 14 to June 3 is almost 1000 points (11108-12103) in 14 trading sessions. If the history repeats, Nifty may correct to the 11600-11485 levels, which is a gap area of May 20. With Friday’s fall, it closed below the 23.6 per cent level. The next supports are placed at 11717 (38.2 percent retracement) to 11680 (50-DMA) Let us see the price behaviour at these levels. In any case, if these levels do not hold, there is more probability of filling the gap of May 20. The volumes were more than average last week and the decline in price indicates that the distribution has taken place.



The momentum indicator MACD line has crossed under the signal line, which resulted in the histogram turning negative. As we have been suspecting for the last two weeks, even though the price is increasing, the momentum is turning down. This divergence resulted in a fall below the key supports. The leading indicator RSI came to near 50 levels and closed below the earlier swing low. This is a confirmation for the negative divergence. With this, there is a highest probability of the RSI falling up to the 40 level, which means the price will also correct accordingly. The 40 level in the RSI is also a historical support for the market. This confluence of market activity is giving clues about the market direction in the near future. Only in case Nifty moves above the recent swing high of 12000, the upward momentum will pick up and the market will reach new highs. As long as Nifty sustains below the 11960-12000 zone, it is better to avoid long positions. If you look at the Bollinger Bands, which have developed on the basis of the last 20 days’ volatility, the bands are coming closer and the price is below the neckline (20-DMA). Generally, whenever the bands are narrowing and the price reaches below the neckline, it will lead to fall in price towards the lower band. With these technical evidences, it is advisable to be cautious about long positions.

Some of the traders were hoping there will be a pre-budget rally and Nifty will again head towards new lifetime highs. If you think the other way, the budget may trigger a crash in the market as some stringent measures are likely to be taken to boost the revenues. The elevated valuations, below normal monsoon expectations, worries on corporate earnings growth, crisis in the NBFC sector and corporate defaults are the some of the serious speed breakers for the market bulls. Think twice whether or not to be on the positive side of the market.

STOCK RECOMMENDATIONS 

AXIS BANK ............................... SELL .......................... CMP Rs.776.25 

BSE Code : 532215
Target 1 .... Rs.740
Target 2 ..... Rs.716
Stoploss.... Rs.820 (CLS) 



Axis Bank fell sharply about 6 per cent from the recent high. This fall is indicating a serious distribution in the stock. In the last 8 trading sessions, the stock witnessed four days of distribution, which is a clear case of profit-booking by some big funds. At the same time, the stock reached 50-DMA support and trading below the 20-EMA and 34-EMA. Most importantly, the stock fell below the prior pivot level with more than average volumes. The MACD line is trading below the signal line for the past three days and the histogram is increasing as the momentum is picking to the downside. The price strength has also declined to 90 levels. The RSI has fallen below the 50 level and has entered into the neutral zone. In case the stock breaches the 50-EMA (Rs.774) on a closing basis or prior low of Rs. 770, the stock will sharply correct to the channel support line placed at Rs.740 level. The Bank Nifty broke down the descending triangle, and as one of heavyweight stock in the sector index, there are chances of reaching the prior intermediate low of Rs.716. Sell this stock at the current level of Rs.776.25. The stop loss for this should be maintained at Rs.820. 

MANAPPURAM ............................. BUY ........................ CMP Rs.141.70 

BSE Code : 531213
Target 1 ..... Rs.156
Target 2 ..... Rs.160
Stoploss....Rs.135 (CLS) 



Manappuram Finance is trading very strongly near to the lifetime high in weak market conditions. After the breakout of the 5-week flat base pattern, it rose 9 per cent from the pivot levels and reached a new high.

The stock is taking support consistently at 8-EMA and moving higher. The RSI is in the bullish zone at 65.42. There is no significant weakness in any of the indicators. The stock is also meeting all the CANSLIM criteria with EPS strength 95 and price strength (RS) 95.

Greater buyer demand of A and 20 per cent return on equity, and with consistent EPS growth of 40 per cent for the last three quarters, the stock is looking attractive even at the current levels. Buy this stock at the current level of Rs.141.70 with a stop loss of Rs.135. The target for medium-term is open towards Rs.156-160

(Closing price as of June 18, 2019)