NIFTY Index Chart Analysis Caught in a Deep Dive

The Indian benchmark indices suffered the biggest one day collapse in terms of points on March 9. The global markets also hit lower circuits amid fears of a global economic recession against the backdrop of the spread of corona virus. For the first time after 2008, Nifty has made the first major swing low and broken all the key long-term supports. Even the Sensex and Nifty Bank indices were caught in a bearish grip. As much as 35 per cent of the listed stocks closed below their 52-week lows. The Bank Nifty has broken down the rising wedge pattern, which is a long-term bearish signal. With the market entering into a confirmed bearish long-term trend, it is better to avoid catching the falling knife.

The Nifty has closed below the November 2018 – March 2019 and August – September 2019 bases. These are important bases for the market to sustain the bullish stance prevalent since 2008. By closing below these bases, Nifty has made a new major swing low. The next level base is November 2017 – October 2018. This base has multiple supports and resistances at 9,950-10,100 levels. We can expect this level to be protected for a period before taking a decisive move again. In any case, if the market consolidates between 10,000-11,100 levels it will consume a longer period. We need to watch from where the Nifty will start the countertrend retracement after three weeks of a steep fall of 1,630 points.

Now, with the correction being over 17 per cent from lifetime highs, the market has entered into a Category II phase of corrections. The Category I correction was limited to 11-15 per cent, which occurred in 2013, 2016, 2018 and 2019. The Category II corrections are between 25-35 per cent. This correction occurred in 1998, 2002, 2004, 2006, 2010 and 2015. There are only two category III corrections in 2000 and 2008 as the market corrected 58 per cent and 62 per cent respectively. If the correction continues to 25 per cent an average, the Nifty target is 9,300-9,400 levels.

Most of the technical indicators entered into an oversold condition. To come out of this situation, the market may bounce and enter into a counter-trend rally. Generally, these counter-trend rallies occur with a steep fall or rise. There already have been more than 17 per cent corrections in just 36 trading sessions. To come out of the oversold condition, any kind of meaningful bounce to the zone of 10,800 with 23.6 per cent retracement to 11,100 with 38.2 per cent retracement could lead to a consolidation phase. Generally, most of the counter-trends are limited to these retracements. There are many gaps in the current steep fall, which may or may not fill.

The next level of support is placed at 9,950-10,100. If the Nifty fails retrace above the 10,800 level, the fall will continue to the next base support of the 9,950-10,100 level. This is the last hope for the bull market. In any case, if the Nifty breaches the 10,000 levels, the fall will continue up to the 9,400-9,600 levels. The low of March 9 is critical for the market to start the counter-trend. As long as this level of 10,294 holds, expect some bounce. If it fails to hold, the fall will continue to the next base. The indicators are not showing any positive divergence in any time frame. Smaller pullbacks on an intraday basis can also be used as a selling opportunity. The RSI is clearly moving in a downward channel.

The MACD has just reached the lowest level after February 2016. The average directional index (ADX) has reached 24.73 on the weekly charts with a negative directional index (-DI) being at the highest level. This shows the bearishness getting stronger. With these technical evidences, any pullback without base formations with positive divergences in indicators can be considered to make an exit from the current portfolio. The delivery-based selling pressure in large-caps and aggressive exits from the FPI and FIIs are also a couple of factors while considering the market condition. The Nifty PE is 23.79. It should come down to a 15-17 level to consider a reasonable valuation zone. Wait for such a reasonable value zone to begin the cherrypicking. 

TTK PRESTIGE .............................. BUY .................... CMP Rs. 5652.15

BSE Code : 517506  Target 1 .... Rs. 6050 | Target 2 ..... Rs. 6200 | Stoploss....Rs. 5360(CLS)

TTK Prestige is a kitchen appliances’ company that broadly operates in three segments – pressure cookers, pans and non-stick cookware. Most of the segments have market leadership. Technically, the stock has formed a base around the Rs. 5,500 level and has been trying come out of a small downward channel. The base has been formed after a decent correction of 35 per cent from its lifetime high. The stock has not made any lower low or major swing low on a weekly chart. The stock is just oscillating around the 50 DMA for the past few months. The Bollinger Bands have just started expanding, indicating a decisive move. As the stock has closed just above the 20 DMA, we can expect the move will be an upside. The RSI is also making higher highs and above the 50 DMA zone. The MACD histogram suggests improvement in the bullish momentum. The 50 DMAs and 100 DMAs are flattened and any close above the 50 DMA will form a higher high on a daily chart and will result in an uptrend. Currently, the stock is trading above the short-term moving averages in GAMMA setup. The institutional interest and the decent 17 per cent return on equity and a stable earning make the stock attractive. Buy this stock at Rs. 5,652.15 with a stop loss of Rs. 5,360. The target is placed at Rs. 6,050 - Rs. 6,200.

IPCA LABORATORIES ..................... BUY ..................... CMP Rs. 1409.90 

BSE Code : 524494  Target 1 ..... Rs. 1510 | Target 2 ..... Rs. 1540 | Stoploss....Rs. 1330 (CLS)

IPCA Laboratories is an integrated pharmaceutical company that produces branded and generic formulations, APIs and intermediates. One of the top pharmaceutical companies in India, it has a presence in 120 countries. The company achieved a more than 20 per cent sales and earnings growth in December quarter. Technically, the stock is consolidating between Rs. 1,300-1,510 levels for the past 15 trading sessions at a time when the market is in a complete bear’s grip. It is trading above all long-term moving averages. The 10-weekly average is working as a stronger support since October 2019. The stock has given a whopping 47 per cent return after breaking out of a flat base in early November 2019. The RSI has not made any lower low and has been in a bullish zone on a weekly chart. The MACD and its histogram suggest that the bullish momentum will continue further. The ADX is also at a very high level at 49.62, indicating stronger uptrend. The stock is also meeting CANSLIM parameters. Its relative price strength is as high as 96 and EPS strength is at 92. The good buyer’s demand indicates institutional interest in the stock. The number of funds invested in this stock increased to 269 in the last quarter. The decent 15 per cent return on equity coupled with double-digit growth makes the stock fundamentally attractive. Buy this stock at Rs. 1,409.90 with a stop loss of Rs. 1,330. The target is placed at Rs. 1,510- Rs. 1540.

*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 Mar 11, 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.