NIFTY Index Chart Analysis

L ast week’s bounce in the market after a violent fall came with an element of surprise. Traditionally, a sharp decline or surge in the market generally leads to consolidation for a period before any further decisive movement.

This time the V-shaped recovery came without a bottom formation. The sharp upsurge is a 66 per cent retracement of the prior downswing. The 66 per cent recovery of 11-day downswing happened in just four days. It tested the annual pivot level of 11,680 on the day of the Union Budget. Another interesting point is that it has been finding stiffer resistance at 12,160 for the past four days. The Nifty closed above the 50 DMA and stayed there just for one day, failing to close above it. 

Along with the bearish engulfing pattern, Nifty closed below the 50 DMA and made a lower high, lower low and a lower close on Friday. The Nifty faced multiple resistance points and supports prior to that at 12,160. In this scenario, recovery will continue only with a close above the high of Thursday or Tuesday. Before this, a sharp recovery from January 8-14 did not sustain for a long period. After four days of a tight trading range, it fell sharply. This is an example of how V-shaped recoveries cannot sustain the momentum for a long period. Unless a flat base pattern or a corrective consolidation pattern forms, the trend will not be trustworthy. The derivative data also suggests that the short squeeze in the market is the main reason for this sharp surge.

On Friday, Nifty formed a bearish engulfing pattern at the resistance point. And on Tuesday it also formed a gravestone doji at the same resistance. These kinds of bearish patterns at the resistance point have more relevance than elsewhere. The zone of 12,160 is a multiple resistance or support area. Eventually, the index is reacting to that. Even on Thursday or on Tuesday, a look at the hourly chart reveals that it mostly traded in a range after opening with a gap and finally formed an indecisive bar. The last four days of price action indicates that the weirdness of the price is exhausted. Only in case of closing above Thursday’s high of 12,161-12,170 and sustenance will the bulls have an upper hand

The next resistance is placed at 12,272, which is a prior swing high. Behind this point, we cannot forecast at this juncture. The RSI is still in the resistance zone only. For the past two months, it tested 70 zones on an hourly chart several times. Even now it is reacting to that zone. The MACD histogram is in the negative zone on a weekly chart and reached green territory on a daily chart, indicating a possible positive move if the index clears the resistance. However, the hourly chart still indicates bearish momentum. The ADX, which shows the trend strength, has not improved even after four days of sharp swing. It actually came down from 21.55 to 17.40, implying that last week’s surge has been weak. The next two days’ price action is very crucial for a near-future trend.

In any case, if the Nifty closes below the prior bar low or gravestone doji low of 12,099, it could be the first sign of weakness. In that case, the fall would be up to 11,929. This is the level of the prior base, where we may see some buying interest. Only below this level do we expect a sharper decline again. It is the time to be cautious at this juncture. In the case of a fall below 11,929, it will lead to a fall to the annual pivot level of 11,680. This support is critical for the next one year. Even though we are very near to a lifetime high, various price patterns and theories suggest that a new lifetime high this year will remain a distant dream. There is the highest probability of forming a base around the annual pivot level in another 4-6 months period before a decisive trending move. Till then the benchmark indices will lose the shine and stockspecific action will be in focus.

VIP INDUSTRIES .............................. BUY ................... CMP  Rs485.70
BSE Code : 507880
Target 1 ....  Rs520
Target 2 .....  Rs530
Stoploss.... Rs450(CLS)

VIP Industries is India’s largest and the world’s second-largest luggage company with 46 per cent market share. Technically, the stock has broken out of a bullish symmetrical triangle and closed above the downward channel resistance line. It also closed above the prior swing high. It is now trading above the long and short-term moving average. With 50 DMA having crossed 200 DMA (golden crossover), this is a long-term bullish signal for the stock. The volumes have been surging above the average for the last two weeks. It is also forming a 20-week cup pattern with a depth of 18.85 per cent. And there is also an inverted head and shoulder pattern. A close above this neckline is also a bullish reversal. The RSI has also broken out of its bullish symmetrical triangle and entered into the bullish zone. The 20-period RSI is above 50 and the stock is trading above the 50-week average, which is also a long-term bullish sign. MACD is showing bullish momentum on weekly and daily charts. The stock is also meeting most of the CANSLIM characteristics. The price relative strength is at 82 and the EPS strength is reasonably good at 70. The greater buyers’ demand shows institutional interest in the stock. Institutional investors have increased their stake in the company by 3.68 per cent in the last quarter. The return on equity is at 24 per cent. The stock is trading very near to the pivot level. Buy this stock at  Rs485.70 with a stop-loss of  Rs450. The target is placed at  Rs520-530 in a short-term.

NIPPON LIFE INDIA ASSET MANAGEMENT ......... BUY ... CMP  Rs400.00
BSE Code : 540767
Target 1 .....  Rs445
Target 2 .....  Rs455
Stoploss.... Rs360 (CLS)

One of the largest asset management companies in India, Nippon Life India Asset Management has an AUM of  Rs3,87,800 crore. With the presence of 261 locations panIndia and  Rs650 crore monthly inflow of 23 lakh SIPs, the company posted decent Q3 results. The net profit was up by 25 per cent to  Rs1,301 crore. The EPS rose by 31 per cent. Technically, the stock has broken out of its 11-week consolidation with above average volume. After listing gains it fell sharply by 62 per cent in 55 weeks and formed a base for 18 weeks at the level of  Rs127. The double bottom breakout gave a whopping 214 per cent returns in just 51 weeks. For the last 11 weeks it has been consolidating with lower volume. The volume surge is continuing in the wake of the breakout. The RSI has also broken out of a bullish symmetrical triangle on a weekly chart and ‘out of the box’ range on the daily chart. The MACD line is about to cross the signal line on a weekly chart. The histogram suggests bullish momentum. On a CANSLIM chart, the price relative strength is as high as 97 and EPS strength is at 46. The stock is above the 40 and 10-week averages and closed above the consolidation. The greater buyers’ demand indicates institutional interest in the stock. Institutional investors increased their stake by 1.55 per cent in the last quarter. Return on equity is at 19 per cent. Buy this stock at  Rs400.00 with a stop-loss of  Rs360. The target is open to  Rs445-455.