Nifty Index Chart Analysis
Through the crucial week just before the union budget, the market remained in the control of bears, as financial specialists and brokers stayed attentive ahead of the key occasions like Future and Options expiry for the month of February, the Railways spending plan and the Economic Survey. The Railway Budget Presented by the Rail Minister Suresh Prabhu neglected to quite the nerves of nervous market participants and the benchmark indices finished with misfortunes of more than 2 per cent and barring the two trading sessions i.e. on Monday and Friday; the market stayed under the offering weight consistently. One more concern which continues to dampen sentiments is constant selling by the Foreign Investors (FIIs); the Indian market has seen most astounding outpourings among the emerging market for the month of February, 2016 up to the tune of US$950 million. Presently going ahead, every eye is stuck on one of the key monetary occasions for the Indian markets i.e. the union budget which is set to be unfolded as on February 29. The market participants will take signals from this occasion and this will set the tone for the Indian equity market in days to come.
As can be seen on the Nifty weekly chart, the index after a brief spell of bullish momentum as on week ended February 19, it continues to witness sell-off and during this process it had formed a potential ‘Bearish Engulfing’ Candlestick pattern. This pattern is characterised by a large red body engulfing a preceding smaller green body; the red body does not necessarily engulf the shadows of the green body but totally engulfs the body itself. This pattern exhibits sellers overtaking buying strength. However, the index has managed to defend its crucial support levels of 6893 which is defined by 200 WSMA (Weekly Simple Moving Average). The momentum oscillator continues its sequence of lower top lower bottom.
Now going forward the critical range to watch out on the downside would be 6860-6890, this range would be a key support area for the index, if it gets taken out the index would, most likely head for the major support around the 6640 mark which 61.8 per cent Fibonacci retracement for the up-move is from 5118.95-9119.20. On the upside, the recent swing high of 7250-7270 would act as a stiff resistance and if we were to see the Nifty taking out this swing high, we could well see the index testing 7600 levels in the short-medium term. So the budget day will be important for the index, if the index moves between the ranges of 6850-7250 than it will continue to oscillate in this range for the next two-three weeks, however, any breakout from said range may trigger another 150-250 points momentum in the direction of breakout.
After forming a reversal candlestick pattern i.e. hammer as on 17th February, 2016 the index entered into a series of higher top and higher bottom and made a swing high of 7252.40, which is almost 61.8 per cent Fibonacci retracement level of down move from levels of 7512.55 to 6869. After forming swing high around levels of 7252, the index has entered into sequence of lower top lower bottom pattern and it has witnessed breakdown of Bearish Flag pattern as on 24th February, 2016 along with a downside gap, this is negative for the index. Index has immediate support around levels of 6950 and once this level is breached with high volumes expect a sharp correction in the market. The daily 14-day RSI is exhibiting a range bound movement and currently quoting around 39 and as per the range 45 is the higher end of the range and 28 is lower end of range.
On the daily time frame crucial level is around 7100-7110, once the bulls manage to sustain above this zone expect a rally up to levels of 7230-7250. On the downside immediate support is placed around 6950 and major support is around 6850. If index sustains below 6850 expect it to test levels of 6630 in the short term as per the AB=CD pattern, where projected CD leg ends at 6630 which is 161.8 per cent retracement of BC leg.
Currently the index is trading below its important short-medium and long term moving average i .e. 21-day EMA (7201), 50-day EMA (7404), 100-day EMA (7623) and 200-day EMA (7831). This indicates that trend for the short-medium-long term on the daily chart is in the favour of the bear’s.
Conclusions (After Putting All Studies Together)
- The short term trend is in the favour of the bears; aggressive traders can build fresh short position below immediate support levels of 6950.
- The intermediate trend is in the favour of the bears.
- The long term trend is down as index has been forming lower top and lower bottom pattern on the weekly chart and it has been trading below its 200 day EMA on the daily chart.
Buy Petronet LNG:
The stock is currently trading at Rs 235. Its 52-week high/low stands at Rs 272.70/ Rs 159.50 were made on January 6, 2016 and April 27, 2015. On the daily time frame, the stock after registering high of Rs 272.70 entered into corrective phase and formed sequence of lower top lower bottom pattern. However, in this process the stock has unfolded a Bullish pattern known as ‘Bullish Wolfe Wave Pattern’. At present, the stock took around its 100-day EMA and formed a potential reversal candlestick pattern. The stock has been trading above its important long term moving averages i.e. 100-day EMA and 200-day EMA; this indicates the long term trend is still in favour of the bulls. Considering the bullish pattern and support from the 100-day EMA we recommend buying this stock for a price target of Rs 248-255 with a stop loss of Rs 224.
Sell United Spirits:
The stock is currently trading at Rs 2651. Its 52-week high/low stands at Rs 4082/ Rs 2225.45 were made on March 5, 2015 and February 18, 2015. This stock has been recently included in the Future and Options segment on the NSE. The primary trend of the stock has been in the favour of the bears. Recently, the stock saw a sharp recovery from the lower levels. However, it failed to cross the strong supply zone which is in the zone of Rs 2830-2880. The stock formed a Spinning top like candlestick pattern, which act as a reversal pattern if found near supply zone. The stock has been trading below its important long term moving averages i.e. 100-day EMA and 200-day EMA; this confirms bearishness in the stock. Hence, traders can initiate a short position at higher levels of Rs 2750-2780 for a target price of Rs 2480-2400 with a stop loss of Rs 2880.