NIFTY Index Chart Analysis

A DOWNHILL RIDE

The Nifty finally succumbed to an impulsive corrective move across the market selling pressure. The benchmark index opened with an all-time high on March 11 and reacted from a resistance line. A sharp decline on Wednesday, with a 2.44 per cent range, damaged the bullish structure, with a 2.09 per cent net decline on a weekly basis. It erased the previous three-week gains. After seven weeks, the Nifty formed a bearish engulfing candle on a weekly chart. Earlier, the decline in the index was limited to just a week after the bearish engulfing candle, and the bulls failed to cash in on the bearish structure. Since then, the 10-week average acted as solid support. The bulls protected this critical support at least five times in the last eight weeks.

Last week, the Nifty registered two distribution days and recorded the highest volume on a weekly basis, too. A rising wedge breakdown on massive volume usually has serious bearish implications, particularly when it happens at a lifetime high. The pattern breakdown target is near 21,540. Interestingly, the prior swing low is also at a similar level of 21,530. After a massive fall in the previous week, the Nifty is forming a head and shoulders pattern and forming the right shoulder. It may take another 3-6 sessions to complete the formation. If the neckline support of 21,875-905 breaks, the Nifty will register a breakdown. The pattern target is 665 points, which is around 21,200, which is also near the major low of 21,137.

The Nifty is forming a shooting star candle on a monthly chart. October 2021 is also a shooting star, and the implication was an 18.39 per cent decline from the top. If the index corrects 10 per cent from the recent all-time high, the target is the prior high. September 2023, of 20,222, is the most bearish case scenario. Note that the trendline drawn by connecting the March 2020 and March 2023 lows also holds support at a similar level to 20,200. Expect the counter-trend for another 1-2 quarters. The current evidence shows the March 11 high of 22,526 is the top for now.

Incidentally, as mentioned in the last note, the January-March topping formation and the leap year also match. After failing to negate the bearish divergence, the RSI is back to sub-50 levels. It is almost the prior low. The week’s RSI (64.85) also fell to the prior low. The weekly MACD is about to give a bearish signal, as the histogram is almost at near zero. With the big bearish candle, the price structure is damaged, and the Elder’s impulse system has formed a bearish bar. With two additional distribution days, there is the probability that the current uptrend will be disturbed.

No sector is in a position to lead the market. Only Nifty IT is looking bright at the momentum. But, not all IT stocks are in good shape. As the financial year ending is approaching, the fund houses will re-jig the portfolios to manage the NAVs and exit some of the portfolios to distribute the dividends. These adjustments may cause volatility. The FIIs sold over `8,000 crore in the last four trading sessions. Let us watch the fund flow into the Large-Cap, beaten-down sectors and stocks. It is important to watch the fund flows and sector rotation when the market is falling.

In a nutshell, the market may witness flat to negative bias, with the 50 DMA or 10-week support for another 3-6 days. Any bounce above the 20 DMA will be a positive sign and will extend the shortterm consolidation. With the announcement of the general elections’ schedule, no new policies will be announced. The market can sense the election outcome by the end of the third phase. Expect the counter-trend consolidation to continue till mid-May to June. As the event risks are high, it is better to stay cautious. The IT, pharmaceutical and FMCG stocks may play a defensive role in the coming months.

STOCK RECOMMENDATIONS

PIDILITE INDUSTRIES LIMITED ............... BUY ............. CMP ₹2,887.10
BSE Code : 500331
Target 1 .... ₹3,480
Target 2 ..... ₹3,550 
Stoploss....₹2,770 (CLS)

The company is a manufacturer of adhesives and sealants, construction chemicals, craftsmen products, DIY products and polymer emulsions. Its brand name, Fevicol, has become synonymous with adhesives. The other major brands are M-Seal, Fevikwik, Fevistik, Roff, Dr Fixit, Fevicryl, Motomax, Hobby Ideas and Araldite, which also have a strong presence in the market. The company has a leadership position with 70 per cent market share in the adhesives market. It has its own research and development centre with 250 scientists. The company has 26 manufacturing facilities and is getting ready for the next phase of expansion with 24 capacity-building projects. 13 of which are greenfield and 11 are brownfield. It has also planned automated and robotic solutions for packaging. It has a strong distribution network with a presence in 80 countries and operations in nine countries. Technically, the stock is trading prior to the pivot. It recently broke out of a seven-week flat base with massive volume. It is trading above all the short-term and long-term averages, and all the moving averages are in an uptrend. The stock is trading 11.52 per cent above the 40-week average and 6.10 per cent above the 10-week average. Its Relative Strength line moved above the 21 EMA, showing outperformance. The weekly MACD shows a strong bullish momentum. The RSI is above the prior high in the strong bullish zone. The KST and the Stochastic RSI are in the bullish setup. The ADX (25.87) shows strength in the trend. The Elder’s impulse system has formed strong bullish bars. In short, the stock is in a strong bullish setup and ready for a breakout. Buy this stock above the ₹2,885-2,910 zone. Maintain a stop loss at ₹2,770. The medium target is at ₹3,480.

AVENUE SUPERMARTS LTD. ................. BUY .................. CMP ₹4,009.70
BSE Code : 540376
Target 1 ..... ₹4,863
Target 2 .... ₹4,950 
Stoploss....₹3,875 (CLS)

The company is a one-stop supermarket chain that aims to offer customers a wide range of basic home and personal products under one roof. Every DMart store stocks home utility products, including food, toiletries, beauty products, garments, kitchenware, bed and bath linen, home appliances and more – available at competitive prices that customers appreciate. DMart was promoted by Radhakishan Damani and his family to address the growing needs of the Indian family. DMart owns 347 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab and Rajasthan. Technically, the stock has been forming an ascending triangle for the last 52 weeks. Currently, it is trading just 4 per cent to the pivot. It is trading above all the key moving averages and all are in an uptrend. It is 6.4 per cent above the 40-week average and 5.84 per cent above the 10-week average. The weekly MACD has given a fresh, bullish signal. The RSI is shifting its range into the bullish zone. It is also above the Anchored VWAP resistance. The Elder’s impulse system has formed strong bullish bars. It is trading above the Ichimoku cloud and MAMA-FAMA-KAMA bands. The Stochastic RSI is in the bullish set-up. In short, the stock is ready to register a bullish breakout. Buy this stock above ₹4,000 and maintain a stop loss at ₹3,875. The medium-term target is at ₹4,863.

*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 March 19, 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