NIFTY Index Chart Analysis : Tread cautiously; Nifty in slippery mood

There is an old saying on Wall Street that the market is driven by just two emotions: Fear and Greed. And these two emotions were perfectly on display in the last two weeks on D-Street. The emotion of greed was seen after the SEBI’s circular. SEBI’s circular contained guidelines for allocation of funds for multi-caps according to which a multi-cap fund has to invest at least 25 per cent of the fund’s corpus in largecaps, mid-caps and small-caps. On the flipside, fear was triggered by triplets of bad news like spikes in new cases of COVID-19 in European region which created worry regarding the economic impact of potential second wave, further, suspicious activity allegations towards some major global banks and last but not the least indecision about a fresh round of stimulus package in US. In the end, it was the emotion of fear which ruled the market as we have seen Nifty index plunging nearly 600 points from the top which was registered on August 31 and also, extended its losing for the fourth consecutive session on Tuesday.

Before beginning the roadmap for future direction of the index, let us review how our past analysis has done. In our last article we mentioned that the bulls have been fighting a losing battle and we expect Nifty to touch levels of 11,111- 11,084, it was a bold move at that time to call for a correction when everything looked perfect. But like we always say you need to ask the right question to the charts and it will give you the footprints of where the price is headed.

Nifty on Tuesday has closed below at 11,154 levels and officially it has formed a lower low on the daily chart as it has broken its previous swing low of 11,185 which was registered as on September 9. Further, the Nifty has broken its trendline support which was formed by joining August and September low on Monday and most importantly after the breakdown an immediate follow through selling was witnessed with deteriorating market breadth. Also, the Nifty has closed below the 20-DMA and the trajectory of the moving average is downwards. With the above mentioned evidence one cannot stay in denial that the markets have started to throw up signs of reversal. Further to add weight to our list of evidence we look at the distribution day count and the distribution count elevated to seven.

One interesting observation on the leading indicator RSI is that in the current upswing which began from the lows of 11,185 to high of 11,618, the RSI reached to 61.90 levels and it turned down exactly from there. As per the RSI range shift rules if RSI fails to cross level of 60 it has resulted into range shift of RSI. Going ahead, the level of 40 is important on RSI as a move below this would be a big concern for the bull camp as it would be for the first time it would slip below 40 mark since mid-May 2020. MACD histogram further increased on the bearish side. The -DMI is above the +DMI and ADX and the –DMI is in rising trajectory.

Going ahead, the level of 11,084 is an immediate support for the index and break below this level would open gates for further correction towards levels of 10,840 and 10,800. Given that the index has seen a rapid sell-off in the last two trading sessions, where the Nifty has lost nearly 3 per cent and it is attempting to bounce from the oversold region. We would not suggest going short aggressively at the current levels. Wait for a mild pullback towards levels of 11,250-11,310. This is where risk reward would be favorable and stop loss for the short positions would be around 11,410.

To negate current reversal scenario and tables to turn in favour on bulls, Nifty needs to close at least above 11510. Until then it is a sell on rise kind of situation for the index.

STOCK RECOMMENDATIONS

APOLLO HOSPITALS ENTERPRISE LTD .......... BUY ....... CMP Rs 1,789.95

BSE Code : 508869 Target 1 .... Rs 1,930 | Target 2 ..... Rs 1,960 | Stoploss....Rs 1,675(CLS)

Apollo Hospitals has emerged as Asia’s foremost integrated healthcare services provider and has a robust presence across the healthcare ecosystem, including Hospitals, Pharmacies, Primary Care & Diagnostic Clinics and several retail health models. Technically, From the low of Rs 1,047.05, which was registered on March 31, 2020, the stock has maintained its rhythm of higher highs and higher lows and recently the stock has surged above its pre covid-19 levels. Also, the stock has given horizontal trendline breakout on the weekly timeframe. Further, on breakout week, the stock has formed sizeable bullish candle and it has recorded its highest spread, i.e. the difference between high-low since March 2020, which adds strength to the breakout. The spread of the week was nearly 282 points, which was over two times of the 10-weeks average. As the stock is trading near to its all-time highs, all the trend indicators are showing that the uptrend may continue. The Daryl Guppy’s multiple moving averages is suggesting a bullish strength in the stock. The ADX is reasonably good at 25.19 levels. The +DI is above the -DI and ADX shows a strength in the trend. However, after registering the high of Rs 1,900, the stock has witnessed minor throwback. The throwback is halted near the horizontal trendline support, which makes it an ideal stock to enter at the current level. Hence, we recommend accumulate this stock with a stoploss of Rs 1,675 on a closing basis. The target is placed at Rs 1,930-Rs 1,960 in the medium term. 

TITAN COMPANY LTD ....................... SELL .......................... CMP Rs 1,105

BSE Code : 500114 Target 1 ..... Rs 1,040 | Target 2 ..... Rs 1,020 | Stoploss....Rs 1,175 (CLS)

Titan Company Limited is engaged in offering watches, jewelry and others. The Company's segments include Watches, Jewellery, Eyewear and Others. It also offers precision engineering component and sub-assemblies (PECSA) and machine building and automation (MBA) solutions. Technically, the stock has formed Spinning Top candlestick pattern as on weekend of September 04, 2020, followed by a Doji and Shooting Star candlestick pattern. After forming three indecisive candlestick patterns on weekly chart, the stock has finally formed a sizeable bearish candle in the current week. Also, the stock has witnessed upward sloping trendline breakdown on daily timeframe. Along with this trendline breakdown, the stock has also managed to close below its 20-day EMA and 50-day EMA level. Among the momentum indicators, the daily RSI has given downward sloping channel breakdown, which is bearish sign. Interestingly, the price has made three higher highs in recent times but most of the indicators, including the RSI, have not reached near the prior highs. The CCI has also supported the same phenomenon. Further, the momentum indicator MACD line has recently crossed under the signal line, which resulted in the histogram turning negative. Considering all above factors, we recommend short selling this stock with the stoploss of Rs 1,175 on closing basis. On the downside, the stock has potential to touch the level of Rs 1,040 followed by Rs 1,020.

(Closing price as of Sept 22, 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.