NIFTY Index Chart Analysis

NIFTY Index Chart Analysis

The hopes and expectations surrounding the pre-budget rally have completely vanished. This buoyancy is something that we had cautioned about to our investors in the past. As of now, it is the Corona virus outbreak across China, and some other parts of the world, that is taking centrestage. Such news feeds have the power to trigger a fall in the domestic market. But, at the same time, unless earnings improve, we cannot move upwards. The disappointing earnings are another reason to fall. As we are trading at a historical high PE zone, without earnings support, the market tends to slip downwards. 

Technically, the Nifty decisively closed below the 50 DMA and a minor swing low. It also closed below the critical support of 12,118. It broke the major trend line support and reached near to its short-term support. In fact, the Nifty is oscillating around its lifetime high for the past several months without meaning full correction. Since November 2019, the Nifty made new highs at least eight times. For the second time in the past four months, it has broken the 50 DMA. Even though the Nifty has not made a new swing low, closing below 50 DMA for the second time can be considered as the uptrend being under pressure.

At the same time, there are five distribution days as of now. As we discussed earlier, the falls bars are sharper in nature and the positive bars smaller. After the September 24 to October 7 fall, for the second time the Nifty retraced the 23.6 per cent level (12,015). As we enter into the budget week, last week’s bearish engulfing is almost confirmed. On the monthly chart, the Nifty is forming a bearish shooting star pattern at the lifetime high after a dragonfly doji candle. These back-toback bearish candles are not a good sign for a trending market. The Nifty actually reacted from the trend line resistance. The support is placed at the 12,015 level.

In any case, if the Nifty falls below the 12,015-11,929 zone it could be the first indication of a trend reversal. For the second time it has broken down the upward channel. The first time was on January 8 on a broken intraday basis but it closed in the channel. The second time was on January 28 when it closed below the channel support and breached the 50 DMA. This in itself is a sign of weakness in the uptrend. With a negative divergence in the major indicator, RSI is confirmed by closing below the prior swing low. The benchmark index is forming higher highs and higher lows, but the RSI is making lower highs and lower lows.

The RSI has reached a historical support level of the 40-45 zone. Let us watch whether this support zone will hold the market from the big fall or will protect it. The MACD line is almost at zero and the histogram indicates that the downward momentum is picking up. As discussed in our earlier columns, the -DI is making higher highs and +DI has made a lower low. The ADX is further weakened. This structure clearly illustrates weak trend strength. Major sectoral indices such as Nifty Bank and Metal have broken down the bearish patterns. Nifty Bank has broken the head and shoulder pattern and the Metal index has broken the upward channel. The much broader index, Nifty 500, which is a mix of all categories of market capitalisation, is trading at critical support. There is a clear negative divergence in this index and it fell below the short-term moving averages. A close below 9,915 will lead to a trend reversal.

As suspected earlier, the earnings are just meeting the expectations and some of the big companies are missing the expectations. With the lack of demand and margin expansions, this earnings’ season is becoming dull in all aspects. It is a trend reflected in the Nifty priceearnings (PE) ratio. The earnings are not growing rapidly and the price is near to a lifetime high, thus resulting in high PE again. The Nifty PE ratio reached 28 once again. As discussed, with this high PE scenario in the past, it is time to be cautious. The budget could be a trigger point for a decisive market direction.

ASTRAZENECA PHARMA INDIA ............... BUY ............ CMP Rs 2,623.30
BSE Code : 506820
BSE Code : 517569
Target 1 .... Rs 2,845 
Target 2 ..... Rs 2,890 
Stoploss.... Rs 2,480(CLS)


Astrazeneca Pharma India formed a base at the Rs 2,487 level and consolidated for the past 16 days. It actually decisively closed above the 50 DMA with big volume support. With the sideways price action for the past 16 days, the Bollinger bands narrowed. The price closed above the 20 DMA and at the upper Bollinger band. This is an indication of a bigger move in the offing. Since December 30, the 20 DMA is in down-trending and with the January 28 movement it turned up – an indication of a bullish momentum. The RSI has also come out of the consolidation and broken the downward trend line resistance. The MACD line has also turned green and showing upward momentum. The +DI has just crossed above the -DI and ADX. And the ADX is above the -DI. This structure indicates strengthening of the uptrend. The stock is also meeting all the CANSLIM characteristics. Its price relative strength is at 84 and the EPS strength is as high as 96. The good buyers’ demand indicates institutional interest in the stock. An average triple-digit growth on the earnings front and more than 30 per cent sales growth in the past four quarters indicate fundamental strength. Its 18 per cent return on equity (ROE) and highest earnings stability makes the stock attractive at the current levels. Buy this stock at Rs 2,623.30 with a stop-loss of Rs 2,480. The target is placed at Rs 2,845-2,890 in a short-term.

KEI INDUSTRIES ............................. BUY ..................... CMP Rs 576.70
BSE Code : 517569
Target 1 .... Rs 2,845  
Target 2 ..... Rs 2,890 
Stoploss.... Rs 2,480(CLS)
Target 1 ..... Rs 635 
Target 2 ..... Rs 650 
Stoploss.... Rs 530 (CLS)


Power equipment and wiring company KEI Industries’ trading near its prior lifetime high after a decent correction. Technically, the stock is currently forming a cup pattern for the past 13 weeks. It is making higher highs and higher lows and is in a clear uptrend. The stock is trading above all the short and long-term moving averages and meeting the Minervini’s trend template. All the moving averages are trending up. The leading indicator RSI took a support at 40 levels or influx point and bouncing. The downward channel in RSI is almost broken. The divergence will be negated from the price and any close above the prior swing high of 69.41. The MACD line just crossed the signal line, and the histogram became green. This indicates that the bullish momentum is picking up. The +DI is above the -DI and ADX is just flattened. The price is just 6 per cent away from the pivot. The stock also meets the CANSLIM characteristics. Its price relative strength is at 87 and the EPS strength is at the highest level of 99. A greater buyers’ demand indicates institutional interest in the stock. Up to 48 per cent earnings growth and 21 per cent sales growth in the December quarter show momentum in the earnings. With 23 per cent return on equity and better earnings stability, this stock is fundamentally attractive. Buy this stock at Rs 576.70 with a stop-loss of Rs 530. The target is open to Rs 635-650.

Rate this article:
No rating
Comments are only visible to subscribers.

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR