NIFTY Index Chart Analysis

Not Out Of The Woods Yet! 

Despite the current gloomy situation, the month of April turned out to be a historic one for the Indian stock market as it posted its biggest monthly gains in nearly 11 years. Nifty jumped around 14.68 per cent, the best monthly performance since September 2009, and with this it met all our upside targets mentioned in the previous articles. Bank Nifty underperformed the Nifty with a small margin as it gained about 12.49 per cent. The broader market, Nifty Mid-Cap and Nifty Small-Cap rose 15.36 and 13.44 per cent, respectively. Both the FPIs and DFIs were net sellers for the month of April to the tune of Rs  5,208.50 crore and Rs 117 crore, respectively.

However, on the first trading day of the new month, market participants were greeted with pessimism in the wake of US President Donald Trump reviving a threat of new tariffs against China in response to the virus pandemic. Meanwhile, the country’s largest consumer goods company, Hindustan Unilever, reported a decline in volumes for the quarter ended March 2020. Technically, Nifty on the final trading session of the April month closed above the rising wedge pattern and also closed above the 50-DMA. However, in the very first trading session of May, Nifty fell sharply and registered one of its biggest single-day falls in percentage terms since March 24, 2020. 

With this massive gap-down opening it formed a bearish island reversal pattern while Thursday’s breakout of rising wedged turned to be a failed one. In fact, in the daily timeframe the Nifty had broken down the rising wedge pattern. On Tuesday, the bearish island reversal got a confirmation by closing below its prior bar. It also closed below the rising wedge for the second day. Further, on Tuesday, Nifty fell more than 0.2 per cent on volume, higher than the previous trading day. As a result, Nifty added a distribution day. Going ahead, the zone of 9,140-9,082 is a crucial support zone as the prior swing low is placed at 9,140 and the 20-DMA is placed at the 9,082 level.

This support zone could be the last line of support for Nifty. Watch out this important support now, because there are chances Nifty may bounce from this support zone considering that it has declined more than nearly 6 per cent in the last two trading sessions. Hence, a small pullback is possible before the next leg of fall. However, during the pullback rally, Nifty might face strong resistance in the band of 9,350-9,450. As long as Nifty stays below the region of 9,350-9,450, it would be a sell on the rise. And, on the downside, with a close below 20-DMA, which is placed at 9,082 below this level, Nifty will make a lower low and may further correct towards the level of 8,750-8,820.

The zone of 8,750-8,820 is a very important support for the medium term as it is a confluence of the lower band of the last two weeks’ range and 61.8 per cent retracement of a recent rise from the low of 8,055 as well as the corrective leg from 9,039 to 8,056 that is nearly about 983 points. The current fall started from 9,889 and if we deduct 983, we get the level of 8,906. So the zone of 8,750-8,820 is crucial support in the medium term. The Relative Strength Index (RSI), which is a momentum indicator in the daily timeframe, turned down from the 60-mark and in the bear market we have seen that the RSI does not move above the 60-mark while in a weekly timeframe it turned from the 42-mark and at present is trading below the 40-mark.

Overall, we expect Nifty to trade in a broad range of 8,750-9,450 amid stock-specific action. It should be noted that any pullbacks will continue to remain short-lived and limited in their extent. Hence, short traders can keep the 9,450 level as a stop loss. Banking and financial stocks are likely to underperform in the coming days as the Bank Nifty index counter-trend rally fizzled out around 38.2 per cent of the February highs to March lows. Further, Bank Nifty closed below the rising trend-line support for the second day in a row on Tuesday and it has also breached its 20-DMA. Hence, be very selective on long bets in the banking and financial stocks. 

STOCK RECOMMENDATIONS 

AXIS BANK LIMITED ....................... SELL ................... CMP Rs 389.20 

BSE Code : 532215 | Target 1 .... Rs 348 | Target 2 ..... Rs 324 | Stoploss....Rs 425(CLS)

Axis Bank is the third-largest private sector bank in India. It offers the entire spectrum of financial services to customer segments covering large and mid-corporates, MSMEs, and agriculture and retail businesses. The stock has formed a reversal piercing line candlestick pattern as on March 25, 2020 and thereafter witnessed a pullback rally. The pullback rally is halted in between 38.2 per cent and 50 per cent retracement of the prior downward rally of Rs 760.70 – Rs 286 and it is coincides with the 34-day EMA level. Recently, the stock has given breakdown of upward sloping trend-line support formed by connecting swing lows from March 2020.

The stock is trading below its long and short-term moving averages. The leading indicator, 14-period daily RSI, is currently quoting at 40.84 and it is trading below its nine-day average. The weekly RSI is in a super-bearish zone. The momentum indicator, MACD line, has crossed under the signal line, which resulted in the histogram turning negative. Considering all the above factors, we recommend selling this stock at Rs 389.20 with a stop loss of Rs 425. On the downside, we expect the stock to touch the lower Bollinger band level, which is currently placed at Rs 348 and in case it sustains below this level it may touch its recent swing low of Rs 324. 

APOLLO TYRES LIMITED ....................... SELL .................. CMP Rs 85.85

BSE Code : 500877 | Target 1 ..... Rs 75 | Target 2 ..... Rs 68 | Stoploss....Rs 95 (CLS)

Apollo Tyres Limited is engaged in manufacturing and sale of automotive tyres. After registering a high of Rs 182.35 on January 27, 2020, the stock has witnessed correction. This correction halted at the level of Rs 73.40 and thereafter the stock has witnessed a gradual pullback rally. In this pullback rally, the stock has made two attempts to close above 23.6 per cent retracement level of its recent downward rally at Rs 182.35 – Rs 73.40 but failed and witnessed correction. On Tuesday, the stock has given neckline breakdown of Adam and Adam double-top pattern along with relatively higher volume.

Currently, the stock is trading below its weekly pivot and below its long and short-term moving averages. A look at its daily chart confirms that it has been continuously trading below its 200-day EMA level from August 2018. Interestingly, the daily RSI has also formed a double-top pattern, depicting further downside momentum. The daily and weekly MACD stays bearish as it is trading below its zero line. Considering all the above factors, we recommend selling this stock at Rs 85.85 with the stop loss of Rs 95. According to the measure rule of the double-top pattern, the first target is placed at Rs 75 in the short-term, followed by Rs 68. 

(Closing price as of May 05, 2020)

*LEGEND: EMA - Exponential Moving Average. MACD - Moving Average Convergence Divergence RMI - Relative Momentum Index ROC - Rate of Change RSI - Relative Strength Index

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.