NIFTY Index Chart Analysis : NIFTY TAKES A CORRECTIVE STANCE

Our suspicion about market direction has proved right. During the last two weeks the market has witnessed a severe distribution from big investors. It registered the second-sharpest decline in this year. With this decline, the market gave an unwavering bearish signal last week. The previous week’s dark cloud cover-like pattern got a confirmation as the Nifty closed below the prior two weeks’ low, and on a monthly chart it has formed a shooting star candle. After July 20, the index has formed a complete bar below the 20 DMA, and it began a downtrend. After taking support at 20 DMA on Monday, it bounced on the very next day and raised hopes of recovery. 

But the big players used this small bounce for a fresh selling opportunity. During last week it retracted from the 161.8 per cent extension level of the prior uptrend. Interestingly, for the first time, the index has corrected over 5 per cent in a month after March 2020. Though the monthly closing was with little gain, the decline from the high was a cause of concern. In any case, if the Nifty fails to close above 18,604 in the next three weeks, we can assume that the intermediate top is already in place. After 2003, 2006, 2008 and 2014, the RSI has reached the 80 zone on a monthly basis.

On all occasions, the Nifty has corrected significantly. By closing below the two weeks’ low after February 2021, the index has cautioned the market participants. The big bearish candle shows that directional consensus has emerged in the market during the week. The immediate support zone is placed at 17,452 (prior swing low) and 50 DMA at 17,565. One hopes that this critical support zone can be protected. A sustainable bounce above Wednesday’s high of 18,342 can boost the bulls and market sentiment. After a big weekly decline, there is a probability of a bounce towards 18,063 and 18,342. After a decline of 1,000 points from the top, this bounce may give the bears a pause.

In an otherwise truncated week with just three trading sessions one looks forward to the festive occasion of Diwali keeping up the spirits. On a daily chart, the RSI (42.92) has broken the head and shoulder pattern and met the target, almost. It closed below the low of July 20. It also broke the channel and gave a clear short-term bearish signal. It may take support at the zone of 30-37. We can expect a decline below 30 in the near term. The weekly MACD is showing a declined momentum and negative divergence. ADX shows that the trend strength has softened.

The distribution day count is at four. Any increase in this number and a decline below the 50 DMA will change the market structure to an uptrend under pressure. Reducing the stock holding if they are breaking below the 20 DMA or 50 DMA on higher volume is important to risk management. For the next week, the Nifty may trade in the zone of 17,452-18,342. Do not expect much activity in either direction. Stay on the light position size. The market may witness higher swings from now onwards. Concerns of market direction still exist. The current bull phase has ignored many historical facts.

Just a liquidity push has driven the market to new highs. The FIIs sold Rs 25,572.19 crore in October, which is the highest figure after July this year. With the rising crude oil prices, the Dollar index is still trading at above the 94 level. India VIX once again touched a level of above 18 last week. We cannot be bullish with the current market structure. The Relative Rotation Graph (RRG) analysis shows that the Nifty IT index is losing its strength. The Nifty Energy, Media, Realty, Consumption, Service and Infrastructure indices are in the leading quadrant, and this may continue. Nifty Auto, Financial Services, Bankex and PSU Bank indices may show some resilience and outperform the broader market.

STOCK RECOMMENDATIONS

BIRLA CORPORATION LTD. .................... BUY .............. CMP Rs 1,521.80

BSE Code : 500335
Target 1 : Rs 1,700
Target 2 : Rs 1,750
Stoploss : Rs 1,390 (CLS)

Birla Corporation Limited is the flagship company of the M P Birla Group. The company is primarily engaged in manufacturing cement and has a significant presence in the jute goods’ industry. It recently acquired Reliance Cement, a subsidiary of Reliance Infrastructure Limited. With this acquisition the company’s total capacity increased to 15.6 MTPA from 10 MPTA. A 3.9 MTPA cement plant is under construction at Mukutban, Maharashtra. The jute goods’ division has a capacity of 52,631 MTPA and the iron and steel casting division has a capacity of 3,750 MTPA. Technically, the stock is forming a 13-week, Stage 2 cup pattern. The pivot of the cup is at Rs 1,585. During last week it moved above the pivot with above-average volume, closed below it, but closed at a lifetime high. Its relative strength is as high as 74. The stock is comfortably placed above its key moving averages, around 12 per cent and 35 per cent from 50 DMA and 200 DMA, respectively. The weekly MACD line is about to move above the signal line. The ADX (46.53) shows solid trend strength. The leading indicator RSI is in the strong bullish zone. The Mansfield relative strength indicator is at 1.90 and above the prior swing, showing bullish strength. The Elders impulse system has given a fresh buy signal. In short, the stock tested the prior pivot and registered a closing lifetime high. A move above Rs 1,585 is positive, and it can test Rs 1,700 in the short term. Maintain stop loss at Rs 1,390. In the medium term, it can test Rs 1,750.

MINDA CORPORATION LTD. ................. BUY ................... CMP Rs 156.05

BSE Code : 538962
Target 1: Rs 175
Target 2 : Rs 180
Stoploss. : Rs 138 (CLS)

Technically, the stock has registered a 20 week, Stage 2 consolidation breakout with an above-average volume. The depth of the consolidation is 22.79 per cent. The stock has formed a big bullish bar and closed above the pivot level. The stock is comfortably placed above its key moving averages, around 19 per cent and 34 per cent from 50 DMA and 200 DMA. It is trading at a three-year high. The weekly MACD has given a fresh buy signal during one weekly close. ADX (34.95) shows solid trend strength. The stock is also trading above Daryl Guppy’s multiple moving averages setup. All the short and long-term exponential averages are trending up in ascending order. The stock meets several of the CANSLIM characters and the remaining are very near the criteria. The relative price strength is fair at 69 and the EPS strength is strong enough at 62. In the last few weeks with the volumes recording above the average, the A+ buyer’s demand indicates accumulation. The Elders impulse system has given a strong bullish signal on the last weekly closing. A move above Rs 156 is positive and the short-term target is at Rs 175. Maintain stop loss at Rs 138. The medium-term target is at the previous high of Rs 180.

*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 Oct 29, 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.