NIFTY Index Chart Analysis : PANDEMIC CASTS A LONG SHADOW ONCE AGAIN

The consolidation phase continued for another fortnight. During the last two weeks, the Nifty moved within the range of 15,000-14,200. The only difference in the current swings is that it has been at a faster pace. The Nifty faced a Herculean task to cross 14,880 on a closing basis. The 50-day consolidation has had three swings of upside and downside. The ongoing downswing is showing consolidation but is going to be longer than expected. Before the consolidation, the Nifty has witnessed a rally with small body candle for over three months. During the last 50 days, it has more bearish candles than bullish candles. There are several distribution days in the downward channel. 
Each of the bearish candle’s daily range is higher than the bullish ones.

These things happen when the market is in a topping formation. Let us examine in more detail the time and price swings mentioned above. The recent price swings since February 16 has provided many clues on the time and price confluences. Last week’s upswing has been the sharpest among three upswings in the counter-trend consolidation phase. The earlier swings are nine and eight sessions, but the recent upswing is just five sessions with a 6.31 per cent rise. The length of the prior swings is 6 per cent and 5.05 per cent. So, this sharp swing needs followthrough days to continue further. As there are no follow-through days, there is a downswing with an equally sharper one of three trading sessions.

The current downside move may take very little time of a maximum of two to three days to breach the support zone of 14,200. Interestingly, the downswings are almost equal time-wise and price-wise. At the same time, there are two downswings with eight days of length, and one is nine days long. All of them declined an average of 6 per cent. This time and price movement evidence is showing that volatility will increase in the coming days. The Nifty is moving in a downward channel and RSI, the leading indicator, had made a higher high, thus beaming a clear ‘sell’ signal. Andrew Cardwell’s RSI edge rules are meeting for the first time since March 2020. We have not seen this kind of negative divergence since March 2020.

This measured move could test the channel’s lower support line in the short term. This time it may violate the low of 14,191 and probable test of levels of 14,000 and below. There is the probability of testing of the significant swing low of 13,596 made on January 29. Earlier, the RSI had broken out of a triangle, and the breakout proved to be failed one. All the directional movement indicators such as +DMI, -DMI and the ADX are moving downwards. The MACD histogram shows declaration in bullish momentum. The weekly histogram is clearly on the downside. Importantly, the Nifty formed all small bearish candles on a weekly chart.

During the last week, though the Nifty closed above the previous weeks’ high, it formed a long upper shadow candle, showing the higher level selling pressure. Even the current week’s bar is similar to last week’s bar. With this technical evidence, it is not the time to be bullish now. The Nifty must cross the 14,705 levels on a closing basis with a follow-through day. Until then, avoid long positions. The Supreme Court, epidemiologists and healthcare professionals have suggested that a countrywide lockdown should be imposed to curb the spread of the second wave of the corona virus in the country. As the pressure is mounting, the government may take a decision as early as possible.

Already several states have implemented lockdown-like restrictions. In such a case, the market may not repeat the March 2020 rally this time. Be watchful of this event-triggered risk in the short term. The other headwinds for the market include Goldman Sachs’ downgrading of India’s growth. On the other hand, there is only the metal sector that is confidently in the leading quadrant. Though the traditional defensive sectors such as pharmaceuticals and FMCG are in the improving quadrant, there is a need for a stronger price swing and it could take a lot of time to reach the leading quadrant. The IT sector suddenly looks weak as it has broken down the long upward channel. It is also lagging. The mid and small-cap outperformance may keep hopes alive for the broader market.

STOCK RECOMMENDATIONS

JINDAL STAINLESS (HISAR) ................. BUY ................... CMP Rs 167.15

BSE Code : 539597
Target 1 : Rs 184
Target 2 : Rs 200
Stoploss : Rs 153 (CLS)

Jindal Stainless (Hisar) Limited (JSHL), established in 1975, is India’s first stainless steel manufacturing unit. JSHL has worked on backward and forward integration, starting from melting, casting, hot rolling to cold rolling and other value additions. Technically, the stock has broken out of 15 weeks’ cup pattern above average volumes. The cup depth is about 34 per cent. Its relative price strength is at 89, and the EPS strength is as high as 96. The stock is meeting all the characteristics of CANSLIM. The stock is trading at almost three years’ high. It retraced 61.8 per cent of the previous fall.

The weekly MACD gave a buy signal last week, and the histogram shows an increase in bullish momentum. The 20-period weekly RSI is in the super bullish zone and shows the potential to move higher. The ADX showing reasonable strength, and the positive directional indicator +DMI is above the -DMI and the ADX. The stock is also meeting Daryl Guppy’s GAMMA rules as the stock is above all the moving averages and they are all in the desired sequence. The Elders’ impulse system and Pring’s KST has given the buy signal. In short, the stock is in a bullish mode. Buy this stock in Rs 165-170 zone and keep a stop loss at Rs 153 for support. The short-term target is at Rs 184, and the medium to long-term target is at Rs 200.

MARICO ..................... BUY .....................CMP Rs 445.40

BSE Code : 531642
Target 1 : Rs 500
Target 2 :  Rs 553
Stoploss : Rs 398 (CLS)

Marico is one of India’s leading consumer goods’ companies operating in the global beauty and wellness space. Marico’s products are in the space of hair care, skin care, healthcare and male grooming. It markets well-known brands such as Parachute, Saffola, Nihar Naturals, Mediker, Kaya Youth O2, Revive, Set Wet, Livon, Veggie Clean, KeepSafe, Mediker SafeLife and X-Men. At least 90 per cent of Marico’s portfolio of brands occupies leadership positions in their respective categories. Marico has broken out of Stage 1a 10 weeks’ cup and handle with a massive volume. The stock closed at a new lifetime high. The short and long-term averages are trending up, and they are in the desired sequence. On daily and weekly charts, the MACD has given a fresh buy signal. The 14-period weekly RSI is above the prior swing high and in a super bullish zone. The 20-period RSI has sustained above the 50 zone consistently since the last one year. The positive directional indicator +DMI is at the previous swing high. It is also above the -DMI and ADX. The -DMI is almost at the lowest level. This evidence shows strength in the trend. In short, the stock has entered uncharted territory and registered a strong bullish breakout with massive volume. Accumulate this stock in the Rs 432-445 zone. The short-term target is at Rs 500 and the medium-term target is placed at Rs 553. One can maintain a stop loss of Rs 398.

*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 May 03, 2021)
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.