Nifty Index Chart Analysis

The Indian benchmark indices saw a swift and sharp correction in the month of January. However, in the last couple of trading sessions the market witnessed a firm recovery from the lower levels and it seems, the market is finally returning to normalcy.  The key events which aided turnaround in the sentiments were the dovish language of the US Fed in its recent FOMC meet and this raised the hope that the FED may not hike rates in policy review meet in the month of March citing growing concern followed by a revival in the crude oil prices which once traded below $30/BBL and last but not the least, the Bank of Japan’s surprising move to cut its benchmark interest rate below zero to stimulate the economy acted as a booster to the bulls.

As can be seen on the Nifty weekly chart, the index had witnessed a breakdown of a bearish pattern i.e. ‘Descending Triangle’ pattern. However, the bears failed to push the price further lower and formed a ‘Long Legged Doji’ candlestick pattern as on January 22, 2016. The formation of long legged Doji after a bearish move, acts as a bullish reversal in the price action. On the weekly chart, the index has also formed a three candle reversal set up named as ‘Morning Doji Star Candlestick’ pattern. This pattern consists of a long bearish candle, followed by a Doji that has gapped below it, then a final bullish candle that closes well within the body of the first candle. Taking into consideration two crucial reversal candlestick patterns, we believe that a short term bottom has been formed around level of 7200 and as long as this level is intact on the weekly chart there would be no panic for the bulls. So the short term pictures seem to be in favour of the bulls and buy on dips would be advisable, however, the long term picture still looks in the favour of the bears as the index has continued its sequence of lower top lower bottom on the weekly chart.

Going forward, the index has immediate resistance around the level of 7620 on the weekly chart and the bulls need to breach this resistance level decisively for further momentum on the upside. If it sustains above level of 7620, next resistance is placed around level of 7750 and further at around the 7840 mark. On the downside, key support levels are noticed at around 7400 and next major support is found at around 7200. However, a decisive breach below the major support levels of 7200 will trigger a fast sell-off and in this condition, it’s likely to test levels of 6900-7000. The weekly momentum oscillator has turned up form the lower levels and now its trading at around 41 levels. In the past couple of months, we have observed that RSI is trading in the range of 28-50 and from here the weekly RSI is in touch level of 50 which is higher level of the range.  So the reversal candlestick pattern after a downtrend and turning of RSI from lower level indicates an encouraging picture for the index. 

As can be seen on the Nifty daily chart, the index had managed to close above the levels of 7500 after displaying a range-bound movement in the past three trading session i.e. January 25-28, 2016. On the daily chart if we plot Andrew’s Pitchfork from the swing high levels of 8336 formed in the month of November, 2015, we can see that the index has consolidated near its medina line which is in the zone of 7410-7420. In the coming trading session the level of 7610-7630 would be closely viewed by the market participants and if the index sustains above this level it is likely to make an attempt to fill the gap which was created on January 7, 2016.

On the daily chart, the level of 7610 will act as an immediate hurdle for the bulls as it is 50 per cent retracement of the down-move from the levels of 7972 to 7242. The index needs to trade above this hurdle to scale higher up to levels of 7720 and 7800.  On the downside level of 7400 will act as a strong support level as its median line of Andrew’s Pitchfork and also 23 per cent retracement of the down-move from the levels of 7972 to 7242.

Currently the index is trading above its important short term moving average i .e. 21-day EMA and the other hand its trading below its important medium-long term moving averages i.e. 50-day EMA (7678), 100-day EMA (7833) and 200-day EMA (7970). This indicates that trend for the medium-long term on the daily chart is in the favour of the bears.

Conclusions (After Putting All Studies Together)

-          The short term trend has slanted in the favour of the bulls, however, confirmation is required and the index needs to trade above levels of 7610. 

-          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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