Nifty Index Chart Analysis : Maintain A Cautious Stance

Equity benchmark indices extended the pullback for the second consecutive week amid high volatility. Nifty had gained about 431 points in the last nine trading sessions during this month. However, it ended with a big negative bar by closing below the prior week’s low during the last week of October. The last two weeks of price action are limited to the previous week’s range. With this sideways action for the last two weeks, the levels of 17,613 – 18,342 haves become the near-term important levels. Unless these levels are breached on either side, consolidation may continue for some more time. 

A strong bounce-back from the 50-DMA support has eased the downside pressure on the index. Now we need to look for its behaviour at the resistance of 18,342 in the next week. The breakout above the mentioned level with an above-average volume will be an important event for the market direction. One interesting point is that the Nifty has not made a major lower as of now. The previous swing lows are at 17,452 and 17,613. These levels will act as very critical supports for the market. Friday’s over 1 per cent move has erased the bearish flag pattern breakdown.

Interestingly, this flag’s upper trend line resistance is also placed at the level 18,342. In any case, any failure to surpass this critical resistance and closes below the prior day will have serious implications of retesting the supports levels at 17,613 and 17,452. A break of these clusters of supports and resistance will give us clarity on the future trend. On the weekly chart, Nifty formed a bull candle with a higher low and higher high than the prior week. This gives a positive bias on the direction. But we need to form an outside bar. The current counter-trend consolidation is already 17 days old. We expect this may end in the next two weeks.

A failure to form a new high above 18,605 and a decline towards 17,452 would indicate the beginning of a downtrend. On the indicator front, the RSI has taken historical support near the 40 zone and bounced back to above 55. It needs to move above the zone of 60-65 to negate the bearish implications of current consolidation and to form a new high. There is no fresh negative divergence visible in the indicator. As the Nifty escaped from the danger of forming a negative bar on a weekly chart, the MACD histogram returned to the above zero line after a brief period of spending below the zero line. The daily histogram is still in the below zero zone.

The directional movement indicators are at a confluence point and expect an impulsive move on either side. As the daily -DMI is still above the +DMI and ADX, it is better to wait for a bullish confirmation to take a long position. The Mansfield relative strength indicator is sustained below the zero line, and shows an underperformance compared to the Nifty 500 on a weekly basis. The benchmark index is moving higher but the relative strength has been weakening since November 2020. The indicator tested the zero line twice during the last one year. 

Unless the large-cap stocks outperform the broader market, we may not see a stronger bull market in the near future. The Nifty is above the 20 DMA, but it needs to turn up again. In a nutshell, the market is in a stage of consolidation and it needs to move out of this zone. As long as the supports are protected, be with a positive bias. At the same time, we cannot assume that the uptrend has resumed. We need to have a cautiously optimistic approach towards the market. Unless a clear, decisive trend has emerged on either side, it will be challenging to manage the trades. The earnings season is ending and we may see a sector-specific activity with leadership from the stronger stocks.

STOCK RECOMMENDATIONS

ADANI TRANSMISSION LTD. ............... BUY .............. CMP Rs 1,918.45

BSE Code : 539254
Target 1 : Rs 2,220
Target 2 : Rs 2,602
Stoploss : Rs 1,770 (CLS)

Adani Transmission Limited is one of the largest private sector power transmission companies in India with a presence across all the regions of the country. The company owns and operates various high-voltage AC transmission lines and substations ranging from 132 KV to 765 KV. It also operates high-voltage DC transmission lines and substations of up to 500 KV. It has a target to set up 20,000 circuit kilometres of transmission lines by 2022. It is the only private sector company to operate 500 KV HVDC in South East Asia. It has also built the longest private HVDC line in Asia. The stock has broken out of a seven-week cup pattern with higher volume than the previous two weeks. Before this breakout, it also broke out of a 13-week Stage 2 cup breakout with a massive volume during September. The stock is trading above its key moving averages. It is trading above 13 per cent above the 50 DMA and 66 per cent above the 20 DMA. By registering a new high and closing with an upper circuit, it has generated strong buying interest in the stock. The daily MACD has given a fresh buy signal. The RSI is in a strong bullish zone in the daily and weekly charts. The weekly ADX (38.75) shows solid trend strength. The weekly Elders impulse system and Pring’s KST has given a fresh buy signal. The stock is clearly above the Anchored VWAP. In short, the stock has registered a strong bullish breakout. A move above Rs 1,990 is positive and it can test Rs 2,220 in the short term and Rs 2,602 in the medium-long term. Maintain an initial stop loss at Rs 1,770.

SUNDARAM-CLAYTON LTD. ...............BUY ........... CMP Rs 4,629.90

BSE Code : 520056
Target 1 : Rs 4,920
Target 2 : Rs 5,100
Stoploss : Rs 4,400 (CLS)

Sundaram Clayton Limited (SCL) is part of the TVS Group. The company is a leading supplier of aluminium die castings to the automotive and nonautomotive sectors. It has plants in five locations – four in India and one in South Carolina, USA. It has an interesting composition of sales of 50 per cent domestic and 50 per cent exports. It has a capacity of 74,000 metric tonnes per year. Technically, the stock has broken out of a Stage 2, 16-week cup with a massive volume. It closed at the highest level after October 2018. Its relative price strength is at a fair 67. And the Mansfield relative strength is very strong at 1.02, which shows an outperformance compared to the broader market. The weekly Elders impulse system has given a strong bullish signal. The stock is trading 13.48 per cent above the 20 DMA and 20.72 per cent above the 50 DMA. The weekly MACD has given a fresh buy signal. The RSI closed above the prior swing high and in a strong bullish zone. The ADX (41.65) shows solid trend strength. In short, the stock is in a strong uptrend and has registered a bullish breakout. Maintain a stop loss at Rs 4,400. Above Rs 4,610, the medium-term target is placed at Rs 4,920.

*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 Nov 15, 2021)

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.