Nifty Index Chart Analysis

The week gone by has been terrible for the Indian stock markets as the benchmark indices witnessed a crash of about 7 per cent in a week’s time and this itself is a record for the worst weekly losses in the past seven years. This outrage by the bears has caused the talks on the D-street about a recap of the famous 8-year bear cycle. This theory of 8-year bear cycle indicates that after every 8 year markets witness a major correction which is in the range of 20 – 60 per cent. If we apply this theory in Indian markets, we had witnessed a hefty correction in the year 1992 followed by a major correction in the year 2000, then in the year 2008 and now the year 2016 is the next in the eight-year cycle.  The recent crash in the Indian markets is credited to rout in the global market particularly the Japanese market played a spoilsport as it registered a fall of over 11 per cent last week, sentiments were hit further as the PSU banks have done aggressive write offs and relentless selling by the FIIs added to the gloom. 

As can be seen on the Nifty weekly chart, the index had breached lower end of the bearish pattern i.e. ‘Descending Triangle’ pattern in the second week of January, 2016, however, the bulls were able to recovery from the lower levels in the last week of January and formed a reversal candlestick pattern know as Morning Doji Star. But since the market was not able to sustain at higher levels and it tested the breakdown trend line and the reversal candlestick pattern got negated. Currently, the index has formed a strong bear candle with above average volume which indicates bears are in commanding position.  On the other hand, the index has halted its recent fall on Friday near to lows which were formed in the second week of May, 2014 which is placed around levels of 6862 and this too happens to be the 200-weekly simple moving average. So this fetches us a conclusion that as long as the index hold levels of 6800-6870, we could see a pullback rally up to levels of 7100-7240.

Now going forward, the index has immediate support around levels of 6870 on the weekly chart and the bears need to pierce this support level decisively for further momentum on the downside. In this condition, the next major support for the index would be in the zone of 6600-6550 which is 61.8 per cent retracement level of up-move started from the levels of 5118.85 to 9119.20. On the upside the levels of 7120 would be immediate hurdle for the bulls and if the bull manages to sustain above levels of 7120, next resistance is placed around levels of 7240.

As can be seen on the Nifty daily chart, the index is still in the series of lower low and lower high indicating the trend is still in the favour of the bears as per the Dow theory. However, after this aggressive fall, the technical indicator suggests that some respite may be in the offing as RSI has entered into oversold territory. On the daily chart the index has also formed a reversal candlestick pattern known as ‘Hammer.  However, this candlestick needs confirmation for reversal in the trend. 

On the daily chart the level of 7050 will act as an immediate hurdle for the bulls. The index needs to trade above this hurdle to scale higher up to levels of 7120 and 7240.  On the downside levels of 6860 will act as a strong support level and if this level is breached next major support is placed around levels of 6650.

Currently the index is trading below its important short-medium and long term moving average i .e. 21-day EMA (7369), 50-day EMA (7551), 100-day EMA (7737) and 200-day EMA (7907). This indicates that trend for the short-medium-long term on the daily chart is in the favour of the bears. 

Conclusions (After Putting All Studies Together)

-         The short term trend is in the favour of the bears; however, short on rise should be the strategy for the short term as market have entered into oversold zone.

-         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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Stock Recommendations:

Buy Asian Paint:

The stock is currently trading at Rs 855. Its 52-week high/low stands at Rs 926.80/ Rs 693 were made on August 5, 2015 and June 16, 2015. On the weekly time frame, the stock after registering high of Rs 926.80 entered into a sideways to corrective mode and the stock took support at 61.8 per cent retracement of the up-move from lows of Rs 693 to high of Rs 926.80. After taking support at 61.8 per cent retracement stock has seen decent up-move. Currently, the stock is hovering around its crucial support level define by the upward rising trend line formed by joining major low made since June, 2015. Considering that the stock has resisted its fall near its crucial support as defined by the upward rising trend line, we recommend buying this stock for the target price of Rs 892-910 with stop loss of Rs 828 on closing basis.

Buy Pidilite Industries:

The stock is currently trading at Rs 583. Its 52-week high/low stands at Rs 638/ Rs 507.30 were made on March 20, 2015 and August 25, 2015. On the daily chart, the stock breached its long term trend line resistance on February 4, 2016. Currently, the stock is hovering around the trend line area and this trend line which earlier acted as a resistance will act as a support now.  The stock is trading above its important medium-long term moving averages i.e. 50-day EMA, 100-day EMA and 200-day EMA this confirms the bullish trend of the stock. The RSI is quoting above 50 levels which is a positive signal for the stock. Considering the above factors we recommended buying this stock with stop loss of 560 on closing basis for a price target of Rs 610-630.