NIFTY Index Chart Analysis

NEAR TERM VOLATILITY ON THE HORIZON

The target of 17,740 which was mentioned in our earlier Nifty column has been met which was based on the 127.6 per cent extension of the prior swing.In addition to this, we also discussed the overbought condition along with the low VIX in our earlier columns. We will discuss these factors now again in detail. On September 17, Nifty gave the first sign of weakness as it fell over 200 points from the day’s high. It retraced 38.2 per cent of last week’s up-move in just a single day, which is the first sign of weakness. The index has decisively closed below the prior day’s low on Monday i.e. September 20 after August 20. Even in the recent flat base, it did not close below the prior low. 

Comparing the September 20 price action to that of August 20 we find a stark difference between them. The August bar closing was greater than the opening while the September 20 bar closed near the day’s low. The Nifty has already registered two consecutive distribution days in the last two trading sessions and with this the distribution day count has increased to three now. In any case, addition of two more distribution days will change the market status. A close below the 50 DMA (16,487), along with five distribution days, is classified as a downtrend.

On a weekly chart, whenever 14 periods’ RSI has reached 80 it has made a top in the past. This time too it has reached the extreme overbought condition in all timeframes. Along with the overextension of the prior swing, this overbought condition has resulted in intense profit-booking at the new high. There were two lows at 17,254 and 17,269 in the previous weeks. Interestingly, July 28 to September 17 rally’s 23.6 per cent retracement level is exactly at 17,254. So, this is going to be an important support for now. In any case, expect a big bear hug soon if the Nifty fails to bounce from this level.

India VIX traded below 18 for many weeks; it has even tested the level of 10 on the downside multiple times. Interestingly, the India VIX currently for the 16-week period is trading below the 18 mark and a similar sort of pattern was witnessed just before the fall driven by the pandemic when India VIX traded below the 18 mark for almost 18 weeks. As mentioned earlier, as had been witnessed many times in the past, the prolonged period of low VIX will result in an impulsive and volatile move. That’s exactly what has been happening for the last two consecutive days. A new multi-week has been witnessed in India VIX with a three-month range breakout and a closing near the day highs.

With a serious increase in volatility and a weekly close above the 17.93-18 zone, bears, in all probability, will dominate the market for some time. Even during the top of 2014, the VIX had broken out of the range and closed above the 18 mark on a weekly basis. Hence, keep a close watch on India VIX; a close above the 18 mark would be a red flag. Another interesting observation is that the Mansfield relative strength indicator shows that the Nifty is underperforming. Interestingly, the relative strength as per the indicator is below the zero line.

As stated, the mid-cap and small-cap outperformance is one of the major factors for the market rally. These two important market drivers have already declined below the previous week’s low. Barring FMCG, all other sectoral indices exhibited bearish overtones and mostly reversal patterns – evening stars in several cases. Bank Nifty registered a failed breakout. That said, we cannot get so bearish at this juncture. Nifty must form a lower high and lower low bar on a weekly timeframe. In history, only in the year 2016 did Nifty make an intermediate top in September, and in 2010 it made a top in October.

Historically, in 16 out of 21 years, the Nifty formed a major top in the January-March quarter. As per the seasonality charts, the October-December quarter has been the most bullish in the last 15 years. This historical fact shows a less probability of a big bear market ahead. The volatility will increase in the near term and it will become extremely challenging to trade in shorter periods. Hence, we would advise traders to concentrate on quality names and for trading bets maintain strict stop loss. 

STOCK RECOMMENDATIONS 

BEML LTD............ BUY ............. CMP Rs1,397.20

BSE Code : 500048
Target 1 : Rs 1,500
Target 2 : Rs 1,592
Stoploss : Rs1,320(CLS)

BEML Limited is a public sector undertaking that mainly operates in the defence, rail, power, mining and infrastructure sectors. It has nine manufacturing units. The company is exporting to over 68 countries. It has a dedicated research and development infrastructure. Currently, the Government of India holds 54.03 per cent stake in the company and intends to divest. The stock has been consolidating for the past 28 weeks and this consolidation has led to the formation of a cup and handle pattern with a depth of about 27.44 per cent. The whole price action in this consolidation period looks like an ascending triangle as well. The stock is trading above all the key moving averages. It is up by 3.50per cent above the 20 DMA and 5.50 per cent above the 50 DMA. Both the moving averages have begun to trend higher. It is consistently trading above the 20 DMA and the narrowed Bollinger Bands indicates an explosive move. The RSI (65.82) is in a bullish zone and above the prior swing high. The MACD is about to give a buy signal on the weekly timeframe. ADX (48.23) shows a solid strength in the trend. The stock took support at Anchored VWAP and is moving higher. Pring’s KST has given a buy signal. The Mansfield relative strength is above the zero line and the Dorse comparative relative strength is above the 50 average. This shows that the stock is outperforming the broader market. In short, the stock is trading near the pivot level and any breakout will result in a strong impulse move. Maintain a stop loss at Rs1,320. The short-term target is placed at Rs1,500 and the medium target is at Rs1,592.

BALKRISHNA INDUSTRIES LTD. ........... BUY ........... CMP Rs 2,478.00

BSE Code : 502355
Target 1 : Rs 2,640
Target 2 : Rs 2,800
Stoploss : Rs 2,375 (CLS)

Balkrishna Industries is the flagship company of the Siyaram Group. It is a leader in the niche tyres segment used in heavy machinery for mining and agriculture. It is self-reliant in carbon black along with multiple sourcing arrangements for other raw materials. Up to 80 per cent of the revenue comes from export. The company is planning for capital expansion. Technically, the stock has formed a six-week cup and is trading near its pivot and lifetime high. It is comfortably trading above the key moving averages. It is trading 4.85 per cent above the 50 DMA and 3.60 per cent above the 20 DMA.

Both are trending higher. In addition to this, the price is also above the Anchored VWAP resistance. The ADX (47.09) shows that the stock is in a strong uptrend. The weekly MACD is about to give a buy signal soon. The RSI is in a strong bullish zone. The Mansfield relative strength is above the zero line and the Dorse comparative relative strength is above the 50 average, which shows a strong outperformance than the broader markets. In short, the stock is in a bullish structure and near to the breakout. A move above Rs2,800 is positive and it can test the level of Rs2,640 in the short term and in medium term it can test levels of 2,800 in the short to medium term.

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 Sept 20, 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