NIFTY Index Chart Analysis

How Low Will The Nifty Go?

There have been no surprises. Not as far as the price movement on D-Street was concerned, that played out in a picture-perfect manner as per expectations. If you recall, we had expected the counter-trend rally to inch close to the 9,400 level and we proved to be bang on target with the Nifty touching a high of 9,390 on April 20, following which it came tumbling down and closed below the 9,000 mark on Tuesday. On that day, both crude oil and the corona virus pandemic shocked D-Street. The WTI Crude (West Texas Intermediate) crashed into negative territory to settle at –USD 37.63 for the first time in the history on the New York Mercantile Exchange.

This means that you have to pay to get someone to take barrels of oil off your hands amid a growing supply gut and storage shortage. Though the market opened in a gap-down phase, it took support near the 38.2 per cent retracement level of the current upward movement from the low of 8,056 and it managed to recoup some of the losses, as a result of which this led to the formation of a small body candle with a long lower shadow, resembling a hammer pattern. It also formed a NR7 pattern, meaning a narrow bar 7. It is a bar that has a smaller range than the six bars before. It is a range contraction that precedes range expansion. The index has formed a rising wedge pattern in a downtrend phase and the formation of such a pattern during a downtrend is a temporary price movement in the opposite direction. It is characterised by shrinking prices that are confined with two lines coming together to form a pattern. The pattern breakdown would be confirmed on a close below the level of 8,800-8,840. Hence, in the coming trading sessions the zone of 8,800-8,840 would be closely monitored as it is a crucial support area for the index with its confluence of last week’s low placed at the level of 8,821. The lower trend-line of the rising wedge pattern is placed in this region.

The big question is how low Nifty can go. In any case, what if Nifty manages to close below the 8,800-8,840 mark? A decisive move below such levels is likely to have a severe negative implication on the index, but the next very crucial level to watch out on the downside would be around 8,672, where the confluence of Fibonacci levels are placed. Generally, the confluence level will have greater importance to find support and resistance. The 23.6 per cent retracement level of the high of January 20 to the low of March 24 is placed at the 8,672 level. And the 38.2 retracement to the low of March 24 to April 20 is also placed at the level of 8,672. As long as this level does not break, there is a possibility of a bounce once again.

The FPIs have sold aggressively for the last four trading sessions as they were net sellers to the tune of Rs 6,673 crore while the DFIs have also been in the selling mode for the last two trading sessions, wherein they have sold Rs 857.33 crore. On the sectoral indices front, since April 13, Nifty Pharma has been the best performer as it has gained just over 3.5 per cent and 70 per cent of the stock component of this index has managed to give positive returns.

On the other hand, the worst performer has been Nifty Metal as it has plunged over 4.13 per cent and about 80 per cent of the stocks have delivered negative returns with NMDC and Jindal Steel being the worst performers, plummeting more than 10 per cent each. The India volatility index, India VIX, which has been on a downward trajectory after marking a high of 86, has been flirting around the 61.8 per cent retracement level of the sharp rise witnessed since February 20. On Tuesday, volatility surged as it rose by 4 per cent to 45. Overall, the markets are expected to witness some time correction in the coming week after the rally of last two weeks of approximately 14.5 per cent. 

During this time correction phase, the Nifty is expected to consolidate in the range of 8,800-9,390 with stock-specific action as the earnings’ season will pick up. Hence, traders are advised to place their bets according to the mentioned consolidation range. Also, it is important for traders to trade with one-third of the actual trading bets as volatility is likely to kick in any time soon. For aggressive long traders, aggressive long positions are advised only if the Nifty moves above the 9,390 mark convincingly. 

STOCK RECOMMENDATIONS 

UJJIVAN FINANCIAL SERVICES LTD ............ SELL .......... CMP Rs 163.25 

BSE Code : 539874 | Target 1 .... Rs 145 Target 2 ..... Rs 124.65 | Stoploss....Rs 180(CLS)

Ujjivan Financial Services is a non-banking finance company engaged in the business of microfinance. The company’s products and services include microfinance, micro and small enterprise business (MSE) finance, agriculture and animal husbandry finance and housing finance. The stock had formed reversal doji candlestick pattern as on February 6, 2020 and thereafter witnessed correction. The correction was nearly 70 per cent from the top. However, considering the daily timeframe, the stock is trading in counter trend consolidation since the last 16 trading sessions and has formed a bearish flag pattern. Currently, the stock is trading below its weekly pivot and below its short and long-term moving averages.

Among the momentum indicators, the 14-period daily RSI cooled off after touching the zone of 45 and at present its reading is 38.19. The daily stochastic has given bearish crossover, which indicates downside momentum. Moreover, on the directional index, the bearish strength is higher than the bullish strength as +DI is below the -DI. Considering all the above factors, we recommend selling this stock at Rs 163.25 with a stop loss of Rs 180. On the downside, we expect the stock to touch the lower trend-line of a flag pattern which is currently placed at Rs 145 and in case it sustains below this level it may touch its recent swing low of Rs 124.65. 

COLGATE-PALMOLIVE (INDIA) LTD......... BUY ............... CMP Rs  1,403.75 

BSE Code : 500830 | Target 1 ..... Rs 1530Target 2 ..... Rs 1550 | Stoploss....Rs 1300 (CLS)

Colgate-Palmolive (India) is a consumer products company. Technically, the stock had formed a reversal hammer-like candlestick pattern as on the weekend of March 20, 2020 and thereafter bounced sharply up to the level of Rs 1,439.60. Currently, the stock is trading above all its long and short-term moving averages and they are in sequence. The stock is meeting Daryl Guppy’s multiple moving averages set-up rules as it is trading above both the short and long-term moving averages. The leading indicator, 14-period weekly RSI, is currently quoting at Rs 54.57.

It is in a rising trajectory, which suggests a bullish bias. Interestingly, the stock has never been in an oversold condition in the past four years on a weekly chart. The momentum indicator weekly, MACD line, has crossed above the signal line, which resulted in the histogram turning positive. For any immediate decline in stock, its crucial moving average, i.e. the 20-day EMA, is likely to act as a strong support, which is currently placed at Rs 1,309. On the upside, the stock is likely to touch the level of Rs 1,530, followed by Rs 1,550. We recommend buying this stock at Rs 1,403.75, with a stop loss of Rs 1,300 on a closing basis. 

*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 Apr 21, 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.