NIFTY Index Chart Analysis

The benchmark index Nifty lost about 950 points or 7.85 per cent since its lifetime high of 12103 on June 3. As we discussed in the earlier columns, the Nifty has broken critical support of 11301 on a weekly basis. 

The 995-point rally in anticipation of election results has been completely destroyed by disappointing budget proposals and earnings. After retracing 80 per cent of the earlier swing, the index tested the 233 (Fibonacci number) day moving average for the last three days and gave up on July 29. Even though Nifty closed in the marginally positive territory on July 26, it formed a lower low and lower high. Other than 200-DMA, all other moving averages are turning down and are much above the price. Nifty has already breached the 200-DEMA on a closing basis. As long as it trades below the 11360 level, there are chances of moving further down towards the 200-DMA level of 11135. The bears may take rest at 200-DMA (11135) or 11080 zone and any kind of pullback may test the 100-DMA level within 4 to 5 days. Only faster retracement above the 100-DMA will boost the sentiments in the market. The Friday’s green candle with lower volumes is not demonstrating any confidence in the bulls. Most of the indicators are in an oversold condition or near to that, and they may try to come out of it in the near future. The leading indicator RSI tested the oversold mark and bounced three points on Friday. With two days of significant fall, the RSI once again reached below the 30 level. Prior to this, it went below the 30 level in Sep-Oct. 2018 and once tested on May 13, 2019. But, on a weekly basis, it has broken down the earlier low and the descending triangle. It reached the 45 level after October 2018 low. The bearish strength is very high as -DI is much above the +DI and the ADX. The ADX at 28.24 indicates that the bearish strength is picking up. The other important factor is that after breaching the upward channel on July 23, it tested twice in the next two days. Any unsuccessful retesting is not a good sign in the near future. Any pullback behind 11761 level can be considered as an end of the intermediate downtrend. So pullbacks are normal after 6-8 days of fall and these pullbacks can be used for an exit of profitable positions. If the pullback is not visible and the fall continues below the 200-DMA and addition of another two days of distribution means we are seriously in a clear bear market. In case Nifty closes below the May low of 11108, the long-term trend implications are very serious in nature. This fall will also confirm that the major top is formed on June 3 at 12103. In our earlier columns, we had warned this top was made on stretched valuations and may not sustain for a long period. Many sectoral indices like FMCG, auto, metal and other indices have already broken the May 2019 lows. The market breadth is completely towards the bears' side. The number of stocks hitting 52-week lows is increasing every day. 

The sentiments in the market has suddenly turned into pessimism. The FIIs sold almost Rs.15,000 crore worth of stocks in the month of July. With this, let us wait and see whether this pessimism turns into capitulation in the near term. But this is the time to be cautious and take profit out of the table. Not a time to build an aggressive portfolio in the near future. Staying in cash is the best policy to protect precious capital

STOCK RECOMMENDATIONS

Zydus Wellness ...................... BUY .......................... CMP Rs.1,366.90

BSE Code : 531335
Target 1 .... Rs.1550
Target 2 ..... Rs.1640
Stoploss....Rs.1310 (CLS)

Zydus Wellness Ltd. Zydus has been a niche and significant player with its portfolio of flagship brands like Sugar Free (sugar substitute), Everyuth (skincare) and Nutralite (health foods). The company enjoys a leadership position in majority of categories in which it operates. The company’s consistent earnings sales growth for the last six quarters and increasing institutional holding in the company shows the strength in the stock.

Technically, the stock formed 37-week ascending triangle and it is trading nears its pivot level. Monday’s above-average volumes indicate that fresh buying interest has been generated in this company. It is also trading above all the short and long term moving averages. The RSI is in the bullish zone and is ready to break the sloping resistance line. The MACD line is above the signal line and zero line for the past nine weeks. The MACD histogram is indicating that the momentum is picking up. The stock also retraced about 38.2 per cent of Sep-Oct 2018 fall. BUY this stock at Rs.1366.90, with a stop loss of Rs.1310. The target is open towards Rs.1550 and beyond that it can test the level of Rs.1640.

Vedanta ................................ SELL .............................. CMP Rs.150.55

BSE Code : 500295 
Target 1 ..... Rs.135
Target 2 ..... Rs.122 
Stoploss....Rs.162 (CLS)

Vedanta Limited is a diversified natural resources company. Technically, it has broken down the bearish symmetrical triangle and formed lower lows and lower highs since January 2018. The stock fell more than 56 per cent from January 2018 highs. The stock is in the grip of the bears as it is trading below all short and long term moving averages.

The RSI is in a bearish zone on the weekly chart for the last one year. The 150-DMA is acting as stiff resistance for the stock since April 2018. The MACD line is below the zero line for almost 15 months. The histogram suggests that the negative momentum is picking up. The Q1 results propelled huge distribution in the stock for the last two days. SELL this stock at Rs.150.55 with a stop loss of Rs.162. The target is open towards Rs.135, followed by Rs.122.

(Closing price as of July 30, 2019)