Nifty Index Weekly Chart Analysis

The first week of December this year was an eventful one as a number of crucial events were lined up on the domestic front as well globally. The week had begun with Reserve Bank of India’s (RBI’s) fifth bimonthly monetary policy, which turned out to be a non-event. RBI governor, Raghuram Rajan decided to maintain status quo on repo rates and also left the CRR and the SLR unchanged which was along the expected lines. The next important event which was much awaited by investors and traders across the world was the Federal Reserve Chair Janet Yellen’s speech. Yellen in her speech signalled that the Fed is all but certain to raise interest rates this month for the first time in nearly a decade, saying that the economy and labour market have met the central bank’s goals. In a case of monetary divergence, the ECB slashed deposit rates by 10 bps which was lower than market expectation and this resulted sell-off in the markets.

As can be seen in the Nifty weekly chart, the index after registering an all-time high of 9119.20 levels in the month of March, 2015, has entered into a sharp correction and thereafter it has been forming a sequence of lower top and lower bottom pattern for the long period of time. The index has struggled to cross its important psychological level of 8000 and formed a ‘Bearish Engulfing’ Candlestick pattern as on 4^th December, 2015. This pattern is a bearish reversal pattern, usually occurring at the top an uptrend.

On the weekly chart, a ‘Descending Triangle’ pattern seems to be unfolding now. This pattern is viewed as a bearish pattern and an effective pattern. A descending triangle occurs when there is a downward sloping resistance line and a horizontal support line that meet together at the right side of the pattern i.e. apex. If we plot a trend line from the top which was registered in the month of March around the levels of 9119.20, we get a downward sloping trend line and this trend line has been touched quite often in the past six months. If we plot another trend line that connects the major low formed on the Nifty index since October, 2014. We get a potentially horizontal trend line, which exhibits 7600 levels as a strong support for the index.

On the other hand, the momentum oscillator RSI is approaching near an important support level of 40. However, it is continuing its sequence of lower top and lower bottom and the RSI is trading below the average. So these are not very encouraging signs for the bulls.

Currently, the index on the weekly chart has been trading in the triangle, on the higher side levels of 8280-8350 will act as a strong resistance zone for the index and on the lower end crucial support for the index is around levels of 7550-7600. A decisive breakout above the levels of 8280-8350 on the weekly chart will open up doors for higher targets up to levels of 8550-8650 in the medium term. On the other hand, if the index breaches its crucial support levels of 7550-7600 it will witness breach of descending triangle pattern and this will lead the index up to levels of 7100-7200 in the medium term.

As can be seen in the Nifty daily chart the index has breached its important support level as defined by the lower line of the Andrew’s Pitchfork with a gap down. On the daily chart the index has also formed ‘Three Black Crows’ Candlestick pattern which is a bearish reversal pattern that consists of three bearish candlesticks that are ominous and dark in colour. The index is now trading at a very crucial support level as defined by the upward rising trend line.

Currently the index is trading below its important short-medium-long term moving average i.e. 21-day EMA (7892), 50-day EMA (7968) and 200-day EMA (8120). This suggest that trend on the daily chart is in the favour of the bear’s.  However, a bounce bank cannot be ruled out as the index will try to fill the gap which was created on the 4^th December, 2015.

As long as support level of 7700 is intact, a pullback rally or a bounce back is possible in the index. Therefore, short term traders can wait for a bounce back for creating a short position in index and any bounce back up to levels of 7850-7920 can be used to create a fresh short position. However, if the important support level of 7700 is breached it will open the gates for levels of 7600 and 7550 in the short term. So aggressive traders can create a short position, if the support level of 7700 is breached. On the upside level of 7850-7920 will act as a hurdle for the index. If index manages to close above this level, expect it to scale up to levels of 8035-8130. 

Conclusions (After Putting All Studies Together)

-         Current trend is in favour of the bears and sell on rise should be the strategy, however, if index manages to sustain above levels of 7850-7920, the trend will shift towards bulls.

-         Intermediate trend is sideways to negative and this will turn into favour of bear’s if index close below levels of 7690.

-         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. RSI is also forming lower top and lower bottom pattern.
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Sell Andhra Bank:

The stock is currently trading at Rs 65.75. Its 52-week high/low stands at Rs 100.95/ Rs 58.50 were made as on 01^st January, 2015 and 10^th September, 2054. On the daily timeframe chart stock is trading below its important short-medium-long term moving averages i.e. 21 day EMA (Rs 67.46), 50 day EMA (Rs 67.63), 100 day EMA (Rs 68.96) and 200-day EMA (Rs 71.89), confirming bearishness in the stock for all the time frame. Stock has witnessed strong distribution in the range of Rs 69-71. As on 1^st December, 2015 the stock has formed a classical doji candlestick pattern and it was followed up with a bearish engulfing candlestick pattern. Since then the stock has continued its sequence of the lower top and lower bottom. Recently, stock has breached its important support as defined by the upward rising trend line. The 14- period RSI is quoting near 42 and is moving below 9 day average indicating a negative outlook. Considering above factors we recommend sell on this stock in the range of 65.75-67 with stop loss of Rs 72 on the closing basis with target price of Rs 62-60 in the short term.

Buy SKS Microfinance:

The stock is currently trading at Rs 455. Its 52-week high/low stands at Rs 589.60/ Rs 345.10 were made as on 31^st July, 2015 and 17^th December, 2014. On the daily timeframe chart the stock has seen breakout of Symmetrical triangle pattern as on 27^th November, 2015 along with substantial volumes. Currently, the stock is consolidating near its breakout levels.  The stock is trading above its important short-medium-long term moving averages i.e. 21-day EMA (Rs 443), 50-day EMA (Rs 443), 100-day EMA (Rs 450) and 200-day EMA (Rs 441) confirming bullishness in the stock for medium-long time frame. The 14-period RSI is quoting at 56 and it is trading above 9 day average indicating a positive momentum. Short-medium term traders can initiate buy position with stop loss of Rs 430 on closing basis for a possible up-move up to Rs 490-510.