Nifty Index Chart Analysis

After a glimpse of a bullish momentum during the initial days of the new year 2016, Indian markets suffered a major set back as the markets touched lowest level since July, 2014. The indices had registered losses of more than 6 per cent in the past two weeks and this fall has been observed along with rise in the volumes suggesting sellers have been more aggressive. Mounting tension arising of slowdown in the Chinese economy and alarming fall in the crude oil prices which traded below $30/BBL have been major contributors to the tense situation in the Indian and global markets. However, sentiments further dampened as economy suffered a double blow as the IIP contracted to 3.2 per cent for the month of November, after marking high of 9.8 per cent in the month of October, 2015 and this was the worst performance since October, 2011 when IIP contracted by 4.7 per cent. On the other hand, the CPI or retail inflation came in at 5.61 per cent for December and this is on the rise for the fifth consecutive months.

The results season has just begun and it has exhibited a mixed bag of performance with TCS and Hindustan Unilever reporting a muted performance and on other hand, positive guidance from the IT bellwether, Infosys provided a glimpse of hope for a turnaround in the quarterly performance.  Now going forward, investors and traders will have to keep a close tab on quarterly earnings and this could set the tone of the markets in India.

As can be observed on the Nifty weekly chart, the index has managed to close below its important psychological level of 7539. This level has been an important level as the index had formed multiple bottoms around this level and in the past, has seen good rally on the upside from these levels. However, this time, the bears had the last laugh and managed to pierce the triple bottom and a bearish pattern which we have been highlighting in our earlier write up i.e. ‘Descending Triangle Pattern’.  The breakdown has been observed with higher volumes and the weekly RSI has slipped below the key levels of 40 and is currently quoting at 37 mark. If it holds its presence below 40 and breaks below 35 mark, then that could lead to further increase of strength on the downside momentum.

Going forward, the index has immediate support around levels of 7380-7400 on the weekly chart and a breach of this level could intensify selling pressure and in that case the index is likely to touch levels of 7200-7100. One interesting point to observe is that in the year 2014, index formed bottom around 7420 mark and at that time RSI was quoting in a bullish range which is above 60-65. After consolidating and forming a strong base around 7420 mark it went on to touch life time high levels of 9119 in the month of March 2015. In the current scenario, the index is trading around 7400 levels, but RSI is quoting around 37 mark which means it’s trading below 40 mark which is considered as a bearish range.  On the upside zone of 7540-7620 will act as stiff resistance for the index. Any move above this level will give further momentum for the up-side and in that case 7765 and 7850 will act as a hurdle.

As can be seen on the Nifty daily chart the index had formed a long legged doji on January 12 and a pullback rally was seen on the very next day. Despite the follow up buying after formation of a long legged doji, the index was not able to cross its immediate resistance level of 7610 and ended the last trading session of the week close to its lower level of 7425. This hints pullback rally was used to liquidate long position and the market was under the grip of bears.  Nifty on the daily time frame chart breached its double bottom pattern around levels of 7540 and shifted to sideways movement in the range of 7425-7605 with high volatility.

On the daily chart the level of 7400 is a very crucial support level for the index as it is 61.8 per cent retracement of the previous up-move from the levels of 6339.70 to 9119.20. If in any situation index breaches this support it will trigger correction up to levels of 7290-7180. On the upside levels of 7540 and 7620 will act as a stiff resistance.

Currently the index is trading below its important short-medium-long term moving average i .e. 21-day EMA (7687), 50-day EMA (7794), 100-day EMA (7917) and 200-day EMA (8024). This is suggesting 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 current trend is in the favour of the bears as index has managed to sustain below its important short term moving average i.e. 21-day EMA and 50-day EMA on the daily chart.

-          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.
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Buy BPCL:

The stock is currently trading at Rs 932.55. Its 52-week high/low stands at Rs 987/ Rs 642.70 and were reported on July 23, 2015 and January 19, 2015. On the weekly timeframe chart, it has been observed that the stock has witnessed breakout of consolidation symmetrical triangle pattern, along with robust volumes which suggests buyers were aggressive and held the prices higher in a falling market. The stock had earlier faced resistance around the levels of Rs 916, which was 61.8 per cent retracement level marked from the high of Rs 987 to the low of 802.90. This suggests the stock is likely to move in northward direction.  The weekly RSI is quoting above 60 mark suggesting there is strength in the momentum. Hence, considering the bullish breakout of the symmetrical triangle pattern and RSI quoting above 60 mark, we suggest buying this stock with stop loss of Rs 875 on the closing basis with target price of Rs 980-1020.

Sell Exide Industries:

The stock is currently trading at Rs 135. Its 52-week high/low stands at Rs 205.20/ Rs 133.90 and have been reported on January 28, 2015 and January 15, 2016. On the weekly time frame, the stock has witnessed breakdown from a bearish pattern i.e. head and shoulder pattern and it has also witnessed a breakdown from a descending triangle like pattern. The weekly RSI is trading in the bearish range and has not been able to sustain above 52 mark. Now going forward, if the RSI breaches the level of 37, the downward momentum is likely to accelerate.  On the daily time frame, the stock has been trading below its important short-medium and long term moving averages i.e. 21-day EMA (Rs 141.68), 50-day EMA (Rs 144.41), 100-day EMA (Rs 147.77) and 200-day EMA (Rs 152.33), indicating weakness in the stock. Considering this, we recommend short selling this stock in the range of Rs 137-138 with a price target of Rs 125-120 with stop loss of Rs 149 on closing basis.