NIFTY Index Chart Analysis

Markets on a roller-coaster ride!

Contrary to popular belief that the month of January is a subdued one for the Indian benchmark indices, the first half of January 2022 turned to be a delightful one for both investors and traders.The NSE Nifty logged gain of 5 per cent in the first two weeks of the month and the broader market indices too matched the pace of the benchmark, which clearly indicates that the rally was broad-based. But what we witnessed thereafter vindicated the famous Wall Street saying: “Market climbs up the stairs, but comes down on the elevator.”

In the last four trading sessions, Nifty fell over 3 per cent, while India VIX, also known as the ‘fear gauge’, jumped nearly 20 per cent from January 14 lows and it is now above 18.5 level. On Friday, the Nifty extended its fall for the fourth straight day amid weak global cues and continued selling by FIIs amid concerns over rising bond yields.

Technically, the index had formed a Bearish Engulfing pattern on Tuesday and, thereafter, it has maintained its rhythm of forming lower highs and lower lows with a bearish undertone on the daily chart. In the meantime, it has slipped below its important short-term moving average, i.e. 20-DMA. Although it has slipped below its 20-DMA, the slope of the moving average is upward. But on the daily chart, it has breached its important support area of 17,600-17,700 as this zone was the confluence of 38.2 per cent retracement of December-January rally and previous swing highs (change in polarity). Importantly, on the weekly chart, the index has halted its four-week winning streak as it has formed a sizable bearish candlestick pattern. In addition to this, it has slipped below the 20-WMA.

Interestingly, the index has now extended its correction for the fourth straight day and since October 2021 highs, we have seen the index not correcting beyond four trading sessions. We believe this time as well the index would maintain its pattern of not correcting for more than four trading sessions as, on the lower time frame, the index is in an oversold region and, on the daily chart, the 14-period RSI is approaching towards important support area of 40. Having said that, any pullback from hereon would be restricted towards levels of 17,950-18,000 where the short-term resistance is placed.

Talking about indicators, the daily MACD line is below the signal line and the MACD histogram shows an increase in the bearish momentum. The -DMI is much above the +DMI and ADX. Moreover, the +DMI has slipped below the 25 mark and the -DMI is on a rising trajectory. The Elder Alexander’s impulse trading system has given a fresh sell signal.

Talking about the sectoral performance, barring Nifty Energy index which posted a meager gain, all other sectoral indices ended deep in the red, and to everyone’s surprise, the top loser was Nifty IT index. Nifty IT has been the poster boy of the bull run and, currently, the technical structure of the index is not a pleasing one to watch as it has completely deteriorated. Post the earnings announcements of major IT companies, the index formed a lower swing high and, thereafter, it witnessed one of the sharpest correction to the tune of nearly 8 per cent and, on the weekly scale, it has slipped below 20-WMA.

Meanwhile, talking about the performance of broader market indices, Nifty Midcap 100 has formed a Bearish Engulfing like candlestick pattern on the weekly chart, while the Nifty Smallcap 100 has formed a Bearish Engulfing candlestick pattern at the all-time high, which indicates reversal in the trend.

Overall, the technical set-up indicates ominous sign for the markets, but given the fact that the markets are in oversold territory in the shorter time-frame scale, a pullback rally is not ruled out. The level of 17,500-17,600 is likely to act as an important support zone and a breach of this support would result in extended correction towards the levels of 17,240- 17,300. We would advise you to adopt a selective approach and keep your focus on high quality ideas that are showing improving relative strength, while reducing exposure to stocks breaking below their long-term support.

STOCK RECOMMENDATIONS

BHARAT BIJLEE LTD. ............ BUY .......... CMP Rs 2,064.95

BSE Code : 503960
Target 1 : ₹2,350
Target 2 :  ₹ 85
Stoploss : ₹1,900 (CLS)

Bharat Bijlee is a leading electrical engineering company based in India. Established in 1946, its primary business segments are power transformers, projects, electric motors, magnet technology machines, drives and industrial automation solutions. The company caters to a spectrum of industries and the builders of the nation’s infrastructure, including power, refineries, steel, cement, railways, machinery, construction and textiles. Technically, the stock has given Ascending Triangle pattern breakout on the daily chart. This breakout was confirmed by robust volumes. As the stock is trading at its 52-week high, all the moving averages based trade set-ups are showing bullish strength in the stock. The Daryl Guppy’s multiple moving average is suggesting a bullish strength in the stock. Further, the stock is meeting Mark Minervini’s trend template rules. These two set-ups are giving clear uptrend signs in the stock. The momentum indicators and oscillators are also supporting overall bullish chart structure. The leading indicator 14-period daily RSI is in bullish territory and it is in rising mode. The weekly and daily MACD stays bullish as it is trading above its zero line and signal line. The trend strength indicator, Average Directional Index (ADX), is at 33.61, which indicates strength. The +DI is much above the -DI. This structure is indicative of the bullish strength in the stock. Considering all the above factors, we recommend buying this stock for the target of ₹ 2250, followed by ₹ 2350. Maintain stop-loss at ₹ 1900.

LINDE INDIA LTD. ............ BUY .......... CMP ₹ 2,776.10

BSE Code :523457
Target 1 : ₹3,000
Target 2 :  ₹ 3,100
Stoploss : ₹2,550 (CLS)

Linde India Ltd is a leading supplier of gases and related products and services in India. The company is primarily engaged in the manufacture of industrial and medical gases and construction of cryogenic and non-cryogenic air separation plants. Technically, the stock is on a clear uptrend as it is marking the sequence of higher tops and higher bottoms on the weekly chart. After registering high of ₹ 2945, the stock has witnessed minor throwback. During this throwback phase, the volumes were mostly below the 50-week average volumes, which suggest it is just showing decline after a robust move. The throwback is halted at 50 per cent Fibonacci retracement level of its prior upward move (₹ 1564.10-₹ 2945) and it coincides with 20-week EMA level. The stock has formed strong base near the support zone and, recently, it has given 13-week base pattern breakout on the weekly chart. This breakout was confirmed by the above 50-week average volume. On the weekly chart, the RSI has given bullish crossover and it is in rising mode. The daily RSI is also in bullish territory. The trend strength is very strong as ADX is at 49.98, and it is above the +DMI and -DMI. Moreover, the Martin Pring’s long term KST set up has also given a buy signal. Based on the above observations, we expect the stock to continue its upward movement and test the level of ₹ 3000, followed by ₹ 3100 in the short-term. Stop loss can be maintained at ₹ 2550 on a closing basis.

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

(Closing price as of Jan 21, 2022)

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.