NIFTY Index Chart Analysis

A fortnightly view on Nifty 50 and two investment ideas on the basis of intensive technical analysis in a 15-day horizon.

Short Positions More Preferable 

The dream of reaching a fresh high has become a mirage for now. As we mentioned earlier, the new high is a distant dream. The sharp surge after a violent fall did not move above the 62 per cent retracement level. The fall from near 12,160 now resembles the earlier downswing. After a “V” shape recovery, the fall is formed at a lower high in the intermediate and medium trend. As Nifty has already formed two lower highs and lower lows along with the formation of a downward channel, this is a clear downtrend sign. Even last week’s surge of 244 points from the low of February 18 was not sustained. Finally within three trading sessions the Nifty closed below the low of February 18.

At the same time, the Nifty failed to close above the prior bar high on a weekly chart for the past six weeks. The Nifty breached its 12-months, 6-months and 3-months central value area (aka point of control) and closed in the bottom 10% of the candle, indicating strong bearish overtones. If Nifty cannot move up above the support zone of 11,980 on a weekly basis, downtrend continuation can be expected. On a weekly chart, it also formed a bearish engulfing and hanging man candle after a long-legged doji. On an hourly chart, it has also broken down the head and shoulder pattern.

The two days of surge last week did not change the indicator setup. The negative divergences are still intact. If you look at an hourly chart, the RSI failed several times to cross the 70 levels. The 50 DMA is working as stiffer resistance for now. 

The Nifty was able close above 50 DMA just for one day. Even the 244 point surge in two days failed to close above 50 DMA and it actually worked as resistance again. The magnet of the market 20 DMA and 50 DMA are trending down. Currently, the Nifty is trading more than 2.5 per cent below the 50 DMA. At the same time, the 200 DMA is just another 100 points away.

The recent support of this level may or may not hold this time. In any case, due to the low of February 3 of 11,614 breaches, the long-term trend also becomes bearish. The 11,614- 11,550 zone is the only visible critical support for now. As we are in the process of closing February derivative series, we can see a very volatile session. Any kind of short covering or a buying support at a lower level that fails to move above 11,980 on a closing basis can be considered just as a pullback. In such a case, the dream reaching a new lifetime high in this calendar will become a Herculean task.

The RSI is moving in a downward channel. This leading indicator has given an early signal through market topping formation by showing a divergent movement. As is it also below the historical support of 40, we can expect some more down move. If you look at an hourly chart, the RSI failed several times to cross the 70 levels. This in itself shows the weakness in the benchmark index. The MACD also faced a resistance at zero line and is falling back. The histogram is also showing growing bearish momentum. The market breadth is more aligned towards the declines. The FPI/FII selling once again gathered the momentum. Mid and small-caps are collapsing. Auto, Metal and BFSI sectors are in a clear down trend.

In this scenario, it is better to wait for basing formation for at least 6-8 weeks. Otherwise, any sharp upside move will attract fresh selling pressure. Better avoid aggressive long positions and take short position on pullback. The stock-specific activity will continue.

STOCK RECOMMENDATIONS 

SUDARSHAN CHEMICAL INDUSTRIES ........... BUY ......... CMP Rs. 472.85 

BSE Code : 506655 BSE Code : 517354 Target 1 .... Rs. 515 | Target 2 ..... Rs. 530 | Stoploss....Rs. 435(CLS) 

Sudarshan Chemicals is the fourth-largest speciality chemicals company in the world with a 35 per cent market share. Technically, the stock is moving in a tight range for the past seven weeks. After forming a base around Rs. 297 for 12 months, the stock is moving up and up by forming the smaller bases. The base by base formations are a good sign of a growth stock. The stock is already up by 56 per cent from the bottom or a 52-week low. Currently, the stock is trading above all the short and longterm moving averages. The Bollinger Bands are clearly trending up. The RSI is above 50 on a daily chart and above 70 on a weekly chart, indicating that the stock is in a bullish zone. The MACD is also above the signal line. The histogram is cooling off but, still in green. The ADX is at 46. 94 on a weekly chart and this indicates a strong trend. The stock is meeting Market Minervini’s trend template rules. It is also meeting all the CANSLIM characteristics. Its relative price strength is as high as 91 and EPS strength is 96. The greater buyers’ demand indicates institutional interest in the stock. Institutional investors have increased their stake in the company by 0.35 per cent in the recent quarter. Its return on equity (ROE) is at a healthy level of 25 per cent. Buy this stock at Rs. 472.85 with a stop loss of Rs. 435. The target is placed at Rs. 515, followed by Rs. 530. 

HAVELLS INDIA ............................ BUY ......................... CMP Rs. 643.95 

BSE Code : 517354  Target 1 ..... Rs. 700 | Target 2 ..... Rs. 723 | Stoploss....Rs. 589 (CLS) 

Havell’s India is technically looking healthy as it is has broken out in a double bottom pattern. After falling 27 per cent from lifetime highs in seven months, it has formed a basing pattern at Rs. 585 for the past one month. During this one month of flat base formation, the volumes consistently recorded higher levels. This is a sign of accumulation at the lower levels. The William’s accumulation and distribution index has also moved above the zero line. The stock has also broken out of a falling wedge pattern with good volumes. After several attempts in the recent past, the stock closed above the 50 DMA, which worked as resistance. Interestingly, the 50 DMA also turned upside, indicating that the downtrend is arrested and the stock has entered into a fresh uptrend by closing above the valley point. The leading indicator is also moving in an upward channel while the price is in a box range. The MACD is just on the zero line and above the signal line. The histogram suggests that the momentum is bullish. The +DI is just crossing the -DI and this indicates bullish strength in the stock. The O’Niel’s price relative strength (RS) turned up and improved to 52 and is a sign of a better price performance. With a better EPS growth and 19 per cent return on equity, the stock is displaying fundamental strength. Buy this stock at Rs. 643.95 with a stop loss of a recent low of Rs. 589. The initial target is placed at Rs. 700. Above this level it can test at Rs. 723. 

*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 Feb 25, 2020) 

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