NIFTY Index Chart Analysis

Nifty Remains In Broad Trading Range

While trading with a largely bearish undertone, the equity markets have not made much headway over the past 15 days. The headline index, Nifty 50 resisted to its 20-week MA in the previous week and ended up closing below that.

The start of the week also remained bearish. As per the most recent price action, the 20-week MA which presently stands at 17,596 remains the most immediate resistance for Nifty. After marking its high point in October at 18,600, Nifty has marked a lower top at 18,350. On the lower side, Nifty is seen taking support at an extended pattern support trend line.

This trend line begins from 15,430 and joins the subsequent higher tops. The pattern analysis of Nifty on the weekly chart reveals that that since October’s marking of a fresh lifetime high it continues to remain under a broad 2,000-point trading range. This trading range has a bottom of 16,400, which is the most immediate recent low that Nifty has formed. Over the next 15 trading sessions, Nifty is likely to largely remain in a broad trending range. Further, over the coming days we may see some technical rebound on Nifty; however, any runaway move on the upside is highly unlikely.

The formation of a candle with a long upper shadow near the resistance of 20-week MA at 17,596 has added to the credibility of this resistance. For any strong move to happen and sustain at higher levels, moving past this point would be crucial. By and large, the trading range that is formed is that of 2,000 points with it being defined as 18,600 on the higher side and 16,400 on the lower side. So, any oscillation in this zone may seem a little violent and large from the short-term perspective. However, if we look at it from a pattern analysis point of view, it is nothing but a sideways well-defined broad-ranged consolidation.

So long as the mark of 16,400 is defended, Nifty shall keep its primary trend intact. The markets would be pushed into a secondary trend and the primary trend will get disrupted only if the level of 16,400 is comprehensively violated. On the lower side, Nifty has a strong pattern support near its most immediate low point of 16,400. If the markets move lower, going near this point will also mean testing the lower Bollinger band also going very near to the 50-week MA which currently stands at 16,451. Therefore, the zone of 16,400-16,450 makes up a strong support base for Nifty on a closing basis.

From the sectoral standpoint, we will see sectors like oil and gas, automotive, PSU banks, PSEs and select IT stocks likely to put up a relatively resilient show against the broader markets. If we look at the sectoral set-up of the different sectors on the Relative Rotation Graph (RRG) benchmarked against the broader Nifty 500 index, a couple of sectors show a promising model. The PSU Bank index has rolled inside the leading quadrant again along with Nifty PSE index. These two sectors along with Nifty Bank, which has rolled inside the improving quadrant, are set to relatively outperform the broader markets. It is also likely that Bank Nifty may outperform the frontline Nifty index as well over the coming days.

A look at the derivatives data also points to a less likelihood of any major move on the upside. The strikes of 17,300, 17,400 and 17,500 have seen significant amount of call writing with the level of 17,500 holding the maximum concentration of Call OI. It makes this point the most important immediate resistance level for the markets. On the lower side, the 17,000 level has maximum Put OI – this implies that watching the price action of Nifty against the levels of 17,000 would be crucial and must be kept in sight. It also implies that any violation of the 17,000 level may result in incremental weakness for the markets.

STOCK RECOMMENDATIONS

DIVI'S LABORATORIES LTD............ BUY .......... CMP ₹4,201.10

BSE Code : 532488
Target 1 : ₹4,490
Target 2 :  ₹ 4,590
Stoploss : ₹4,100  (CLS)

The price action in DIVISLAB presents interesting opportunities in the near term. The stock marked its multiple tops between ₹5,250-5,275. The price failed to achieve a breakout after resisting in this zone for multiple times. The stock did mark an incremental high point of ₹5,425 but the breakout failed, only to send the prices back below the ₹5,250-5,275 zones. After the failed breakout, the stock has remained in a falling channel. The 50 DMA, which stands at ₹4,478 has acted as a proxy trend line for the stock. During the most recent corrective move, the stock slipped well below the 200 DMA (₹4,634) as it marked its low of ₹3,788.

Over the past couple of days, the stock has staged a technical rebound from these levels and appears to be making attempts to put a temporary bottom in place. While the prices acted as described, the stock has seen a quadrant crossover. The stock has rolled inside the improving quadrant of the Relative Rotation Graph (RRG) when benchmarked against the broader Nifty 500 index. Rolling into the improving quadrant would mean a potential end to the relative underperformance of this stock. If the stock stays above ₹4,100, it may test ₹4,490–₹4,590 levels over the coming days.

STOCK RECOMMENDATIONS

WIPRO LTD. ............ BUY .......... CMP ₹557.20

BSE Code : 523457
Target 1 : ₹600
Target 2 :  ₹ 620
Stoploss : ₹530  (CLS)

WIPRO marked a classical double top near ₹725 and saw a sharp corrective retracement from that level. The corrective move took the stock well below all the key moving averages of 50, 100 and the 200 DMA. These moving averages are presently at ₹653, ₹646, and ₹608, respectively. After slipping below the 200 DMA, the stock formed a low at ₹537 and has seen a small technical pullback. From the most recent price action, a few signs have emerged which hint at a potential reversal of trend in this stock. The most important of them is the quadrant crossover into the improving quadrant of the RRG.

This would mean a potential start of relative outperformance against the broader Nifty 500 index. The RSI is neutral and does not show any divergence against the price. It is very close to being oversold after crossing above 30 from an oversold situation. The daily MACD is bearish and trades below the signal line. However, a look at the histogram shows that it is sharply narrowing. It would mean that the downside momentum is decelerating. This may lead to a positive crossover of this indicator in the coming days. If the present technical structure resolves on expected lines, the stock may test the levels of ₹600-620 in the immediate short term. Any close below ₹530 would negate this view.

(Closing price as of Feb 07, 2022)

*LEGEND: • EMA - Exponential Moving Average.• MACD - Moving Average Convergence Divergence • RMI - Relative Momentum Index• ROC - Rate of Change  •RSI - Relative Strength Index

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.