NIFTY Index Chart Analysis

Don’t Let Your Guard Down

The year 2022 has really started on a happy note for market participants with the Indian benchmark indices displaying resilience despite the noise in the global markets after hawkish comments in the US Federal Reserve’s minutes and the rising number of Omicron cases. The Nifty extended its winning streak for the third successive week. Moreover, benchmark NSE Nifty registered gains of 2.64 in the last week, thereby recording its best weekly performance in the last four months. This was despite the fact that the volatility index, India VIX, jumped over 8 per cent to 17.60. In the broader market, both Nifty Mid-Cap 100 and Nifty Small-Cap 100 index advanced by 2.2 and 1.81 per cent, respectively.

The overall market breadth was positive for the week. Interestingly, both the FIIs and DIIs were net buyers to the tune of Rs 1,082.83 crore and Rs 3,293.28 crore, respectively. Amidst all this, the showstopper of D Street was Bank Nifty that zoomed over 6 per cent in the last week and recorded its best single week gain since May 2021. So, when the poster boy, the current bull run Nifty IT witnessed profit booking, it was Bank Nifty which put its hand up and provided muchneeded support, once again highlighting the importance of sector rotation which has played out very well in this bull phase. 

Technically, benchmark NSE Nifty has breached its sequence of lower high and lower lows on the daily chart as it has managed to convincingly close above its prior swing high of 17,639.50. Furthermore, the index has witnessed breakout of the falling channel pattern and the price has manage to sustain above the falling channel breakout area, indicating robust price structure. In addition to this, since the index has now retraced more than 61.8 per cent of the down-move from the all-time high to the swing low of December, one can assume that the trend has reversed and it’s clearly tilted in favour of the bulls.

Also, the index is trading above its all-key moving averages with the key short-term moving average i.e., 20 DMA trending upwards. Interestingly, the 14-period RSI on the daily timeframe has, for the first time, entered into bullish territory (above the 60 mark) since the last week of October 2021, and on the weekly time frame it stands near about the 60 mark. Additionally, the +DMI is above -DMI and ADX. An uptick in ADX is also exhibiting improvement in the trend strength. On the upside, we believe the index has the potential to test levels of 18,122-18,210 in the near term as it’s at the confluence of 78.6 per cent retracement level of October-December decline and the November 2021 high is placed around these levels.

On the downside, immediate support level is seen around the zone of 17,600- 17,640 as this was the region from where we had witnessed a sharp fall in the past and the major support level is placed in the zone of 17,350-17,400 as it’s at the confluence of 20 DMA and 38.2 per cent retracement of the recent up-move. The Bank Nifty structure also looks positive and we expect the index to head towards the level of 38,845 which is 61.8 per cent retracement level of the down-leg (41,829.60-34,108.45).

That said, a temporary breather or a phase of consolidation cannot be ruled out both in the Nifty and Bank Nifty given the fact the index has witnessed a splendid rally from the December lows. In fact, this temporary phase of breather would make the market healthier and more sustainable. From the above analysis, it is clear that at the current juncture we cannot be bearish as there are no weak signs visible. At the same time, we cannot be complacent as we are approaching a crucial resistance area and hence it’s important to stay attentive and watchful. Going ahead, key triggers which can dictate the near-term direction of the market would be Q3 earnings’ numbers, budget expectations, crude oil prices and global cues.

STOCK RECOMMENDATIONS

DONEAR INDUSTRIES ............ BUY .......... CMP Rs 70.85

BSE Code : 512519
Target 1 : Rs 80
Target 2 :  Rs 85
Stoploss : Rs 63 (CLS)

Donear Industries Ltd. is engaged in the manufacture of fabrics under the brand name ‘Donear’. The company also has a presence in the business activities of rentals and textiles. It was severely hit by the shutdown due to the pandemic last year. However, the company management believes in the strong revival of its business, as is evident from the movement of the stock. The stock had formed an Eve and Adam double-bottomlike pattern with the base at Rs 55. The stock has recently given a neckline breakout and interestingly, it has witnessed a follow through move. In the last four trading sessions, the stock has delivered about 8 per cent returns to its shareholders. This rally is supported by rising volume and indicates participation in the direction of the trend. Its relative price strength is fair at 63 and the Mansfield relative strength indicator is at 2.88 which indicate outperformance compared to the broader market. Interestingly, the daily RSI (68.69) is in a bullish zone and has moved above the prior swing high. The +DMI is above -DMI and ADX. The daily MACD has stayed bullish as it is trading above its zero line and signal line. The MACD histogram is suggesting pickup in upside momentum. Most importantly, the MACD histogram has surged above its prior swing high. Last year, the stock delivered a massive 89 per cent return to its shareholders. Cutting the story short, the stock is well-poised to trend higher in the short as well as medium term. The stock has the potential to test levels of Rs 80-85. Stop loss can be maintained at Rs 63 on a closing basis.

HINDUSTAN OIL EXPLORATION LIMITED .......... BUY ........... CMP 231.75

BSE Code : 500186
Target 1 : Rs 260
Target 2 : Rs 270
Stoploss : Rs 210 (CLS)

Hindustan Oil Exploration Company Limited (HOEC) is engaged in oil and gas exploration. The company is engaged in offering hydrocarbons and other incidental services. It is a small-cap company with a market capitalisation of Rs 3,068 crore. The company has reported higher than the industry’s net income over a period of five years. The stock performed well last year and gained over 111 per cent in just one year. In the month of December the stock rallied 27 per cent and has outperformed its peers by a huge margin. Thus, the stock is soaring in medium as well as short term. Technically, on the weekly chart the stock has broken out of its Stage 2 consolidation pattern. Moreover, the consolidation pattern is of 14-week long duration and a depth of 32 per cent. The breakout is accompanied by strong volume which highlights larger participation in the direction of the trend. Also, the stock has managed to close at the highest level after April 2011. Its relative price strength is fair at 69 and the Mansfield relative strength indicator is at 4.30, indicating outperformance compared to the broader market. The stock is soaring higher with strong trend strength, as indicated by the RSI which is already trading in a super bullish zone. The ADX has started trending up and the +DMI is above the -DMI and ADX. With such strong price action, the stock is set to trade higher in a very short period. Keeping in mind the current bullishness of the stock, it has the potential to scale as high as Rs 260, followed by Rs 270. Maintain a stop loss at Rs 210. 

(Closing price as of Jan 10, 2022)

*LEGEND: • EMA - Exponential Moving Average. • MACD - Moving Average Convergence Divergence • RMI - Relative Momentum Index • ROC - Rate of Change • RSI - Relative Strength Index

Disclaimer : Above recommendations are based on various technical parameters and any fundamental input has not been considered for the recommendations. Follow strict stop loss for the recommendation.