Nifty Index Chart Analysis

This December, investors and traders irrespective of their size and shape across the globe had their eyes glued on the US Fed meet and subsequent announcements. Finally ending all the speculations, the Fed decided to raise its benchmark short-term interest rates by 0.25 per cent after keeping it around zero since the beginning of 2008 financial crisis. The decision to hike rate was broadly along the estimated lines. On the domestic front Indian Parliament’s winter session was a crucial event for the equity market as market participants were hopeful that the much awaited GST Bill would be passed in this session. However, this event failed to bring any much cheer on the Dalal Street as the winter session turned out to be a replica of the monsoon session. The issues such as Lalit Modi controversy and Vyapam scam had ruined the monsoon session while the winter session was stalled with allegations and counter-allegations on the issues ranging from ‘Intolerance debate’ to National Herald allegations and counter-allegations.

As can be seen in the Nifty weekly chart, the index has formed a triple bottom pattern around levels of 7539. The first bottom was formed on 08^th August, 2014 at the levels of 7540, second bottom was registered on 11^th September, 2015 at the levels of 7539.5 and the third bottom was registered on 18^th December, 2015 around levels of 7551 along with a strong bullish candlestick pattern i.e. a bullish engulfing candlestick pattern on 18^th December, 2015, which indicates buyers were aggressively buying at lower levels. The triple bottom pattern is a bullish reversal pattern and in this pattern there are three equal lows.

The second pattern which seems to be unfolding on the weekly time frame chart is a ‘Descending Triangle’ pattern. This pattern is considered as a bearish and effective pattern. 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 August, 2014, we get a potentially horizontal trend line, which exhibits 7539 levels as a strong support for the index.

On the other had the momentum oscillator RSI, which is quoting around 40 levels has not been able to cross its higher range which stands at 50-55 in a long time, this indicates there is a lack of momentum on the upside. It has been continuing its sequence of lower top and lower bottom. So this indicates that sell on the rise activity which has been seen in the last couple of months in the market.  

Now going forward, the level of 7539 would act as a very crucial support level for the index and a decisive breakdown from this level will give confirmation of a breakdown of the descending triangle pattern and this will open the door for the correction up to levels of 7100-7200 in the medium term. On the other hand index needs to sustain above levels of 8280-8350 on the weekly basis to reclaim levels of 8600-8680 on the higher side. 

As can be seen in the Nifty daily chart the index has formed a double bottom around levels of 7539-7550 first bottom was formed as on 08^th September, 2015 around levels of 7539.5 and second bottom was formed as on 14^th December, 2015 around levels of 7551. Currently, the index is hovering near its 61.8 per cent retracement level of the previous up move from the levels of 7539.5 to 8336. The Index is also facing resistance at the gap which was created on 04^th December, 2015. However, if the index manages to cross this resistance level of 7855 it will set up for a decent pull back rally up to levels of 7940 and 8030 in the short term.

Currently the index is trading below its important medium-long term moving average i.e. 50-day EMA (7886), 100-day EMA (8002) and 200-day EMA (8082). This suggests that trend for medium-long term on the daily chart is in the favour of the bear.  However, one positive takeaway is that the index is trading above its important short-term moving average i.e. 21-day EMA (7794), this indicates short term trend is bullish.

For the short term decisive support for the index is placed at levels of 7710 and if index breach this support next important support is placed at 7600. On the upside level of 7855 will act as an immediate resistance and the next major resistance is placed at 7940.

The daily 14-day RSI is quoting around 51 levels and it is trading near its higher end of the range. Now going forward if it manages to sustain above level of 52, it will be the first indication of a good pullback rally and then the next resistance on the RSI would be around levels of 63-65.

Conclusions (After Putting All Studies Together)

-          The current trend is in the favour of the bulls as index has managed to sustain above its important short term moving average i.e. 21-day EMA on the daily chart.

-          The intermediate trend is sideways to negative and index is likely to trade in the narrow range of 7535 and 7940.

-          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. RSI is also forming lower top and lower bottom pattern.
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Buy National Aluminium:

The stock is currently trading at Rs 42. Its 52-week high/low stands at Rs 56.45/ Rs 28 and were reported on 02^nd January, 2015 and 25^th August, 2015 respectively. On the daily timeframe chart, the stock is trading above its important short-medium-long term moving averages i.e. 21 day EMA (Rs 39.42), 50 day EMA (Rs 38.62), 100 day EMA (Rs 38.70) and 200-day EMA (Rs 40.81), indicating bullishness in the stock for short-medium-long time frame. Recently, on the daily time frame, the  stock has witnessed breakout of a bullish continuation pattern which is known as ‘Ascending Triangle’ pattern along with decent volumes. The 14-day RSI has rose from lower levels currently quoting at 64 which indicates strength in the momentum. On the weekly time frame, the stock has formed a Bullish Candlestick with hefty volumes. Hence, we recommend traders and investors to initiate a long position in this stock with stop loss of Rs 38 on the closing basis with target price of Rs 48-50 in the short term.

Buy Tata Steel:

The stock is currently trading at Rs 256. Its 52-week high/low stands at Rs 421.45/ Rs 199.70 were made as on 05^th January, 2015 and 29^th September, 2015. Currently, the stock has been trading above its important short term moving average i.e. 21 day EMA (Rs 240.23) and 50-day EMA (Rs 238.09) with a positive crossover indicating a strong upward movement in the stock. On the daily timeframe chart, the stock has seen breakout of Symmetrical Triangle pattern on 17^th December, 2015 along with substantial volumes. On the oscillators front the daily 14 periods RSI is trading above 60 levels indicating strength in the momentum. However, the stock has been consolidating near breakout level. Considering this we recommended to buy this stock in the range of Rs 248-250 for price target of Rs 270-278 with stop loss of Rs 237 on closing basis.