NIFTY Index Chart Analysis : VICTORY TURNS TO VOLATILITY

NIFTY Index Chart Analysis : VICTORY TURNS TO VOLATILITY

In the past couple of articles we have cautioned our readers about the overextended nature of markets both on the technical and valuations front and at the same time we signalled that volatility would be the name of the game in the weeks to come. These forecasts have been proven true with Nifty witnessing one of its wildest movements of high to low of 530 points in the prior week as against a 10-week average range of 369 points. Over the past fortnight, we saw all shades of emotions like greed, euphoria, excitement and fear on D-Street. 

For a majority part of the fortnight, the bulls were in a complete control as the Nifty recorded a fresh all-time high of 14,753 and the Sensex went past the milestone mark of 50,000. But soon things turned ugly with a fast-paced decline which was witnessed in the last three trading sessions that brought the markets to its knees. The rampant volatility that ensued made life difficult for both investors and traders. On the sectoral front, Nifty Auto, Nifty FMCG and Nifty Infra were some of the sectors which outperformed Nifty index while on the other hand Nifty Metal and Nifty Realty were top underperformers.

At the current juncture if we analyse the chart of Nifty, it beams out a signal of caution after a relentless rally. While one may argue that we have seen days of pause in short-term momentum in the past as well, the point to note is that this time it is ‘really different’. So, let us now straight away move on to establish a chain of evidence to justify the statement. To begin with, the Indian markets, which have been outperforming Wall Street for quite a long time, underperformed the Nasdaq, S & P 500 and Dow Jones over the course of last week.

Further, Nifty added two distribution days last week, taking the total count to five, with one distribution day set to expire on Wednesday. At the same time, many of the stocks have breached their 21-SMA as per the weekend (January 15) count of Nifty 50 stocks which were above the 21-SMA stood at 39, while at present they are parked at 21. Also, the Nifty itself has breached its 21-DMA for the first time after three months. In addition to this, the main engine behind the upsurge in the markets were the FIIs who had pumped in a massive amount of Rs 65,238.60 crore in November and Rs 48,223.94 crore in December.

On Friday, for the first time after January 6, they seemed to take their feet off the accelerator of liquidity, turning net sellers to the tune of Rs 635.69 crore. This was followed by another round of selling when on Monday they sold shares worth of Rs 765.30 crore. This certainly is raising many questions about the sustainability of the flows in the near term. Now let us look at the technical landscape. What does it indicate? Last week’s price action formed a shooting star-like pattern which is viewed as a bearish reversal pattern that typically occurs at the top of uptrends.

The RSI, which is one of the popular momentum indicators, marked a bearish divergence at the top along with a classical bearish failure swing. A bearish failure swing is formed when the RSI moves above 70, pulls back, bounces, fails around the 70 mark and then breaks its prior low. Further, the RSI has slipped below the December 21 major swing low, which is an ominous sign. The daily MACD is bearish since it has traded below the signal line. The MACD histogram and negative movement indicator DMI shows an increasing bearish strength. The only solace on the indicator front is that the positive directional indicator (+DI) is yet to move below the 25 mark as after moving above the 25 mark in early November it is yet to close below this mark.

In the last fortnight, the broader markets have underperformed the Nifty. The underperformance of the broader indices can be gauged from the fact that the pullback which was witnessed in the markets from the lows of January 18 saw Nifty registering a fresh all-time high, but on the other hand the broader indices i.e. Nifty Mid-Cap and Small-Cap were not able to cross their previous swing highs. As a result, they had formed a lower high and on an intra-day basis the Nifty Mid-Cap breached its swing low of January 18 but on a closing basis the level was not breached.

In the meantime, the Nifty Small-Cap breached its swing low on a closing basis. Both the indices are now placed near the 38.2 per cent retracement level of the recent up move. Hence, Monday’s session low would be crucial to watch out as failing to hold above the Monday’s low would open gates for further correction and the indicators are already pointing towards the possibility of the bears picking up momentum. Hence, traders need to be watchful! As for the levels on the Nifty index, immediate support is seen at the 14,100-14,040 levels and any breach of this support level would open the gates for further correction towards the levels of 13,800-13,751.

The zone of 13,800-13,751 is a very crucial support level as it is a confluence of 61.8 per cent retracement level of the recent rise. Also, the gap area of January 28 is placed in this region. On the upside, the 21-DMA is likely to act as an immediate resistance which is placed at the 14,288 level, followed by 14,500. With the Union Budget on the horizon, volatility is likely to surge. Our advice to traders would be to tighten your stop losses and follow risk management rules to weather the storm building up now. Going ahead, the outcome of the Union Budget could be a fresh trigger point for market direction.

STOCK RECOMMENDATIONS

INFO EDGE (INDIA) LTD. ...................... SELL ............. CMP Rs 4,984.40

BSE Code : 532777
Target 1 : Rs 4,500
Target 2 : Rs 4,300
Stoploss : Rs 5,450 (CLS)


Info Edge India Ltd. engages in the provision of internetbased service delivery services. It operates through the following segments: recruitment solutions, real estate (99 acres) and others. The recruitment solutions segment consists of Naukri and all other allied business which together provide complete hiring solutions. The other segment comprises primarily Jeevansathi and Shiksha service verticals. From the low of Rs 1,581.10 that was registered on March 23, 2020, the stock has marked a sequence of higher tops and higher bottoms. The stock has witnessed nearly 272 per cent upside momentum from the low level of Rs 1,581.10.

However, the stock has formed a dark cloud cover candlestick pattern as on the weekend of January 15, 2021, which suggests correction before another northward rally. On the daily chart, the stock has formed two lower tops in the last 14 trading sessions, which indicates bulls are losing their strength near the all-time high level. The momentum indicators also support the same phenomenon. The 14-period weekly RSI has cooled off after touching the 85 zone and at present its reading is 66.30.

The RSI is trading below its nine-week average and it is in a falling mode, which indicates further downside momentum.

The daily RSI is currently quoting at 50.89 and it is in a falling mode. Moreover, the daily MACD has stayed bearish as it is trading below its zero line and the histogram is suggesting pickup in downside momentum. Further, the stock has slipped below its weekly pivot and short-term moving averages, i.e. 13-day EMA and 20-day EMA level. Considering all the above factors, we recommend selling this stock at Rs 4,984.40 with the stop loss of Rs 5,450. On the downside, we expect the stock to touch the level of Rs 4,500 followed by Rs 4,300.

CENTURY PLYBOARDS (INDIA) LTD. ............. BUY ........... CMP Rs 268.85

BSE Code : 532548
Target 1 : Rs 284
Target 2 : Rs 300
Stoploss : Rs 240 (CLS)


Century Plyboards India sells and exports plywood and veneer. The company offers commercial, marine, concrete, shuttering and decorative plywood. The products also include veneer, block board, timber, decorative laminates, pre-laminated boards, fire-safe plywood, flexible plywood, cement, clinker, adhesives and chemicals. The stock has marked a high of Rs 175.10 in the month of January 2020 and thereafter plummeted nearly 46 per cent in the next nine weeks and made a low of Rs 95.10. After registering this low, the stock retraced nearly 50 per cent in the next five weeks; however, it resisted around its 50 per cent retracement and again entered into a corrective decline. This corrective decline was arrested around Rs 100.10 and led to the formation of a higher bottom.

Thereafter, the stock has marked a sequence of higher tops and higher bottoms. The stock has gained over 168 per cent from the low of level of Rs 100.10. The stock is clearly on an uptrend as it is making higher highs and higher lows on the weekly as well as daily timeframe. The stock is meeting the criteria of Mark Minervini’s trend template. The current stock price is above both 150-day (30 weeks) and 200-day (40 weeks) moving average price lines. Moreover, 30 and 40-weekly averages are trending up and at the same time they are in a desired sequence. Also, the 10-weekly moving average is above both 30 and 40-weekly moving averages.

The current stock price is trading above the 50-day moving average, which is above both 150-day and 200-day moving averages. Also, the current stock price is 182.13 per cent above its 52-week low and the current price is closer to the 52-week high. All the major indicators suggest a bullish momentum in the stock. The relative strength index (RSI), which is a momentum indicator, is trading in a bullish territory in all the timeframes. On the daily chart, the RSI has a falling channel breakout on the daily chart, which is a bullish sign. The weekly MACD has stayed bullish as it is trading above its zero line and signal line.

Further, the directional movement index is also at a strong point. The weekly ADX is very strong at 61.50. The -DI is much below the +DI and ADX is above the -DI and +DI. The daily ADX is also in the rising mode. As the technical parameters stand attractive, we believe this stock has the potential for delivering good gains in the short-medium term. Targets on the upside can be seen at around Rs 284 followed by Rs 300 in the medium term. The stop loss can be maintained at Rs 240 on a closing basis.

HERO MOTOCORP LTD ..................... BUY .................. CMP Rs 3,472.85 

BSE Code : 500182
Target 1 : Rs 3,670
Target 2 : Rs 3,825
Stoploss : Rs 3,250 (CLS)


Hero Motocorp Limited has been at the forefront of designing and developing technologically advanced motorcycles and scooters for customers around the world. It became the world’s largest two-wheeler manufacturer in 2001 in terms of unit volume sales in a calendar year and has maintained the coveted title for the past 20 years. The company is a dominant market leader in India – the world’s largest two-wheeler market – with over 50 per cent share in the domestic motorcycle market. Technically, the stock has formed a spinning top candlestick pattern as on the weekend of March 27, 2020 and thereafter marked a sequence of higher tops and higher bottoms.

The stock has gained nearly 127 per cent in the next 29 weeks. However, after registering a high of Rs 3,394.90, the stock has witnessed a minor throwback, halting near the 200-week EMA level. The stock has recently broken out of a Stage 1 consolidation along with robust volume. Since the last two trading sessions, the stock has relatively outperformed the frontline indices as the Nifty marked lower lows while the stock has marked higher high. With the stock trading at its 52-week high level, it is trading above all short and long-term moving averages. It is trading nearly 25 per cent above the 200-DMA and 9.89 per cent above the 50-DMA. Both the moving averages are in a rising mode, which is a bullish sign.

Further, the Daryl Guppy’s multiple moving averages is suggesting bullish strength in the stock. The stock is trading above all the 12 short and long-term moving averages. The averages are all trending up, and they are in a sequence. The stock is also meeting Mark Minervini’s trend template rules. These two set-ups are giving a clear uptrend picture in the stock. The stock is meeting most of the CANSLIM characteristics. The RS rating stands fair at 63. The buyer demand stands at B+, which is good, and ground rank 27 indicates it belongs to a strong industry group.

Talking about indicators, the RSI is in a bullish trajectory in both the weekly and daily timeframe. Further, the daily RSI has recently bounced exactly from the 59-60 zone, which is a bullish sign. On the weekly chart, the MACD line has just crossed the signal line, and the histogram has turned green. Based on the above observations, we expect the stock to continue its upward movement and test levels of Rs 3,670 followed by Rs 3,825 in the short to medium term. Stop loss can be maintained at Rs 3,250 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 Jan 25, 2021)
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.

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