NIFTY Index Chart Analysis

NEGATIVE BIAS IMPACTS THE MARKETS

Over the past 15 days, the Nifty has continued to trade with an underlying negative bias. And despite no major moves on the downside, it has not been able to take any major sustainable directional trend on either side. The previous week saw big and violent volatility infused by the emergence of geopolitical tensions between Russia and Ukraine. While it caused a massive gap-down on one day, the markets also saw equally strong short covering-led pullback on the other. While this volatility of 600 points back and forth on either side got absorbed in the form of a wide trading range, the Nifty closed just 98.45 points or 0.57 per cent on a weekly basis. 

After failing to sustain above the 20 week MA which currently stands at 17,591, it is for the second week that the Nifty has not been able to move past this point and has continued forming a lower top and lower bottom on the bar charts. When the weekly charts are subject to pattern analysis, Nifty appears to be trading in a range which is getting narrower with each passing week. On the higher side, the Nifty is seen resisting the falling trend line; this trend line begins from 18,600 and joins the subsequent lower top near 18,300.

On the lower side, the index appears to be taking support to a rising and extended trend line drawn from 15,430 and joins the subsequent high points.

The index is seen trapped between this falling trend line on the upper side and rising trend line on the lower side and this is what is contributing to the narrowing consolidation range over the week. Over the coming two weeks, expect the markets to largely remain in a defined trading range. Unless there is any clear trigger that may contribute to the markets going sharply up or down, there are very little chances that may cause any directional bias to get established.

On the higher side, the 20 week MA remains a major resistance to the markets on a closing basis. Within the broad trading range, if we break down the most immediate sub-trading range for the Nifty, it works out between the 20 week MA on the upper side and the 50 week MA on the down side. This further means that unless Nifty has a strong resistance at 20 week MA which is at 17,591 and if the Nifty violates the most immediate low and the rising trend line support, it may go on to test the 50 week MA which is presently at 16,501. This breaks down the broad 2,000-point trading range into a sub-trading range of 1,000 points which itself is a reasonably wide one when it comes to daily trading the index.

All this translates into the levels of 17,500 and 17,620 acting as resistance and the levels of 17,000 and 16,800 acting as potential supports over the next 15 days. One must not completely discount and presume that the tensions between Russia and Ukraine have ended. They definitely remain fluid and will continue contributing to the uncertainty that has got embedded in the global trade setup. As we approach the markets over the coming days, more focus will be on Nifty’s ability to defend the 16,800- 17,000 zone on a closing basis as violation of this zone will invite weakness. So long as the index is above this zone, we will see Nifty continuing to trade in a relatively narrow and defined range.

From the sectoral stand point, the energy sector is seen gathering renewed strength. While staying within the leading quadrant of the Relative Rotation Graph (RRG) it is seen sharply improving on its relative momentum. Apart from this, select pockets of consumption, pharmaceuticals, automotive and PSE stocks will continue to outperform the broader markets on relative terms. Select PSU banks will also show intermittent show of resilience and strength. The coming week will see the expiry of the current derivative series. The weekly options data show the trading range of the Nifty being defined between 17,000-17,500 levels as maximum Put OI is seen at the 17,000 level and the highest accumulation of Call OI appears at 17,500. A cautious and ranged market can be expected over the coming days.

STOCK RECOMMENDATIONS

PIDILITE INDUSTRIES LTD. .................... BUY ....................... CMP ₹ 2426.85 

BSE Code : 500331 Target 1: ₹ 2,510 Target 2:  ₹ 2,550 Stoploss:₹ 2,350 (CLS)

The recent price action in Pidilite Industries has been of a small falling channel. This has much to do with some consolidation stage the stock is in at present and its attempt to find a base for a potential technical pullback. The stock set a major breakout from a large falling channel when it went past the ₹ 2,400 levels. This breakout took the stock higher; the price target of this channel breakout was established when the stock tested its high between the ₹ 2,700-2,720 levels. However, after forming this high point in early January 2022, the stock has come in for some sharp corrective move.

The recent corrective move took the price to test its 50 and 100 DMA which presently stand at 2,514 and 2,437, respectively, and modestly slip below these points. While the prices are below these two moving averages at present, it has shown some strong signs of a technical pullback over the coming days. The most recent price action has seen a strong bullish divergence of the RSI against the price. While the price formed lower bottoms, the RSI did not and this resulted in a bullish divergence. If the stock is able to stay above ₹ 2,350, it can test the levels of ₹ 2,510 and ₹ 2,550 on the higher side. 

COAL INDIA LTD. ................................ BUY ........................ CMP 161.20 BSE Code : 533278 Target 1 : ₹ 175  Target 2 : ₹ 184  Stoploss:₹ 155 (CLS)

After a meteoric rise from ₹ 133 to the high of ₹ 203 in October 2021, the stock saw an equally bad corrective move as it pared the bulk of its gains. The corrective moves from ₹ 203 took the stock to ₹ 139; it is from this level that the stock has tried to find some base for itself. Over the past quarter the stock has been in an upward rising channel. The most recent price action has seen the formation of a bullish ascending triangle. Such patterns essentially act as a bullish continuation pattern. The up move in the previous session has taken the stock above all its key moving averages.

Multiple signals have emerged which hint at a likely breakout in this stock. The weekly MACD has shown a positive crossover; it is now bullish and above the signal line. The stock has rolled inside the leading quadrant again directly from the weakening quadrant on the RRG when benchmarked against the broader Nifty 500 index. This marks a start of period of relative outperformance once again for this stock. The RS line against the broader Nifty 500 index is above its 50 DMA and is in an upward rising trajectory. If the present pattern resolves in the expected direction, the stock may test the ₹ 175 and ₹ 184 levels. Any close below ₹ 155 will negate this view.

(Closing price as of Feb 21, 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.