NIFTY Index Chart Analysis : BULLS FIGHTING A LOSING BATTLE

Technology-heavy Nasdaq was the first major US stock index to reach a record high after the corona virus-triggered plunge and in the true sense it was the Pied Piper that led the markets across the world to follow in its footprints. In India, Nifty was no different, which continued to move higher on a daily basis here and there and with little to no downside action led market participants to overlook the fact that markets don’t travel in just a straight line.

However, beginning September, which has long held a reputation as the worst month for stocks, the sentiments started to shift and a much-needed correction was witnessed. So the only thing to fear about the stock market in September is fear itself. This reminds us of what consultant and author Idowu Koyenikan once said, “Many a times, the thought of fear itself is greater than what is we fear.” So this brings us to an important question which every investor and trader on Dalal Street is concerned with: Is this is routine correction or is it the end of the Bull Run?

To know what lies in store, let’s dig deeper into the technical studies. Technically, Nifty had formed a bearish engulfing pattern as of the week ended September 4 and also for the first time after almost 14 weeks it managed to close below its prior week low. However, after the formation of a bearish engulfing candlestick pattern, follow-up selling has been missing and there is a reason for this. If we recall, since July last week there was a tough battle between the bulls and bears around the zone of 11,300-11,380 wherein the bears were not letting the bulls to conquer this zone but at last the bulls pierced the territory and posted a victory flag. 

Thus, like kings who after conquering a territory do not let it go easily, they battled it out to protect the throne. The bulls also will give it all to save this zone and this has been witnessed with a long lower shadow on the daily candlestick chart, suggesting that the bulls are fighting it out. Hence, the level of 11,250-11,300 would be crucial to watch out on a closing basis. However, if we analyse the different evidence available on the chart, it make us believe that it is just a matter of time before the bulls throw in the towel and the bears have the last laugh. 

This is clear from the 21-day EMA which was the lifeline for the bulls during this upward movement in the recent past. Nifty breached this support on September 4 and on September 7 it recorded its third consecutive day of closing below the 21-day EMA. Also, the 21-day EMA is changing its direction. The Nifty has breached its upward rising trend line which was formed by joining the lows of March, May and August. Further, on Tuesday, Nifty settled at 11,317 with a loss of 0.33 per cent. It recorded a fresh distribution day and once again the distribution count on Nifty increased to 5.

The lower timeframe too has been indicating the same and as we analyse prices on 60 minutes, there are too many wide range bearish candles as compared to very few candles with wide range bullish candles, which clearly indicates that the bears are in control and the bulls are fighting a losing battle. On the downside, there is a possibility that Nifty may test the zone of 11,111-11,084 as this is the confluence of its prior swing low and the 50-day EMA. On the upside, the level of 11,450 would continue to act as an immediate resistance followed by 11,570. 

Going ahead, a lot would depend on key growth driver of the rally which we have seen from the lows of March. This includes the movement of index heavyweight Reliance Industries which is showing signs of revival, inflow from FIIs who have turned net sellers in the month of September after a round of frenzied buying in August and the worsening of the border situation with China, not to forget the most important factor i.e. the global cues, which are fragile at the moment. Hence, the bears seem to have an upper hand at this moment and it would require a miracle for the bulls to pull it off. The downside target is seen at around 11,111-11,084 levels. 

STOCK RECOMMENDATIONS 

ALKEM LABORATORIES ..................... BUY ............... CMP Rs 2842.30 

BSE Code : 539523 | Target 1 .... Rs 3,100 | Target 2 ..... Rs 3,200 | Stoploss....Rs 2,670 (CLS)

Alkem Laboratories is one of India’s foremost global pharmaceutical companies which is engaged in the development, manufacture and marketing of pharmaceuticals with operational footprints across 40+ countries. In India, it has a formidable presence in several therapy segments and consistently features amongst the top 10 pharmaceutical companies. The stock is meeting a majority of the CANSLIM characteristics and has an EPS rank of 89 which is considered a good score, signifying reliability in earnings. It has good buyers’ demand (B+) as institutions are increasing their stakes in the company. Alkem Laboratories has a group rank of 32 which shows that it belongs to a strong industry group and the RS rating of 74 is fair.

The master score, which is a blend of fundamental and technical pictures, stands at A and that is what makes the stock attractive for both traders and investors. Interestingly, the stock is also meeting the Warren Buffet rules of investing. The stock is trading comfortably above its 50 and 200 DMA and both the moving averages are in a desired sequence with the trajectory going upward. Furthermore, the stock is trading close to its breakout level of a cup pattern which makes it an ideal stock to enter at the current levels. Hence, traders can look to buy this stock with a stop loss of Rs 2,670 for a target of Rs 3,100 followed by Rs 3,200.

AXIS BANK .................................. SELL ........................ CMP Rs 444.25

BSE Code : 532215 | Target 1 ..... Rs 415 | Target 2 ..... Rs 398 | Stoploss....Rs 469 (CLS)

Axis Bank is the third-largest private sector bank in India and offers the entire spectrum of financial services to customer segments covering large and mid-corporates, MSMEs, agriculture and retail businesses. The stock after trading in a sideways manner for a prolong period witnessed a breakout and went on to register a new swing high of Rs 533.85. The level of 533.85 coincides with 50 per cent retracement level of the fall which began from the second week of February to its March low. The price failed to move above the swing high and the stock came tumbling down which is what led to the formation of a dark cloud cover on the weekly chart. So, a dark cloud cover at a swing high and 50 per cent retracement suggests that buyers have been trapped and they would start unwinding their position.

Further, adding to the bearish thesis is that the stock has closed decisively below the channel support line on the daily chart. And also, it has closed below the 20 DMA. The RSI has given a loud move from the overbought zone and currently is trading below its nine-day average. The MACD has given a sell signal as there has been a bearish crossover. Considering the above factors, it is clear that the stock is technically weak and hence we recommend short-selling this stock. On the downside, the stock has potential to touch the level of Rs 415 followed by Rs 398. Traders can maintain a stop loss of Rs 469.

(Closing price as of Sept 08, 2020) 
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.