NIFTY Index Chart Analysis : Return Of The Bears

The Indian stock market finally realises that it has many obstacles and limitations to make a new lifetime high. The Nifty has formed indecisive bars in successive weeks. Two black Mondays, and the bigger bearish candles are signalling a unique bearish condition in the market. After several attempts, the Nifty has been ineffective in moving above the 14,880 levels, where multiple resistance is placed. Though it violated the short-term supports of the broad range 14,265-14,880 twice on intraday basis, somehow it has managed to get back within the broad trading range on a closing basis. 

The Nifty has breached the weekly upward channel support trendline twice in the last two weeks, on two consecutive Mondays. Though the Nifty was able to close above the trendline during the last week, the repeated violation of trendline is not a good sign. In the current, week it is trading below the weekly trendline. Importantly, the benchmark index is forming lower lows, and lower highs, which is a bearish sign. The Nifty is also trading below the 20-weekly moving average and 2.3 per cent below the 20-DMA. For the first time after June 1, 2020, the 50-DMA started trending down, a major sign of the beginning of an intermediate downtrend.

As mentioned earlier, the Nifty is still moving in a counter-trend consolidation pattern, flag. During this pattern formation, there are a greater number of bearish bars as compared to the bullish bars. The size of bearish bars is also larger. In the last two weeks, there were two instances when Nifty witnessed violent moves on Mondays. The Monday candlestick is meeting the hammer characteristics and it is formed in a downtrend and near the support level. But the only concern is that the next day i.e. Tuesday, the index opened with a gap up and it has formed a bearish belt hold like a candlestick pattern, where the opening price is the high of the day, and this does not give any confidence to the bulls. 

On the indicators front, the RSI is below the October 25 swing low on the weekly chart. It is below the latest swing low and it is in a downtrend. In any case, if it closes below the 50 zone on the weekly timeframe, it would be a quite damaging for the market technically. The MACD is bearish as it is below the signal line for the past five weeks. At the same time, the histogram shows that the bears are in control as the momentum is picking up on the downside. As the ADX moved above 25, it is an indication of bearish strength. The negative movement indicator -DMI is making higher highs and it is above the +DMI.

As there were more than six distribution days in the last 45 days, and the Nifty is trading below the 50-DMA decisively, the market entered into a confirmed downtrend in simple terms. We can assume that the February 16 high of 15,431 is an intermediate top for the market. The Indian stock market has a history topping cycle in the January-March quarter. In the last 21 years, 16 tops occurred during the January-March quarter. So, this time too, history is repeating. To come out of this downtrend, the benchmark index must close above the 14,880-14,980 zone of resistance. In any case, if the Nifty closes below the support zone of 14,265-14,191, it would open the gates for a down move towards levels of 13,600 in the medium term, where the major swing low is placed.

The main driving force for the market since May 2020 has been FII inflows. Even in the last six months (October 2020- March 2021) they have pumped over Rs 1.80 lakh crores. However, as the new financial year begins, they have withdrawn over Rs 4,230 crore during the month of April 2021, which is a big concern. Overall, the market is in a clear downtrend and meeting many of the topping characteristics. The Nifty must break the zone of 14,880-14,980 and register a bullish flag breakout to continue the uptrend. Otherwise, as long as the Nifty trades below its 50-DMA it will be with a bearish bias. Closing below the recent lows of 14,265-14,191 zone means the Nifty could test the level of 13,600 in the near term. In short, unless the 50-DMA turns up, better avoid taking aggressive long positions.

STOCK RECOMMENDATIONS 

AUROBINDO PHARMACEUTICALS ........... BUY ................. CMP Rs 965.50 

BSE Code : 524804
Target 1 .... Rs 1,061
Target 2 ..... Rs 1,120
Stoploss....Rs 932 (CLS)

Aurobindo Pharmaceuticals is the second-largest listed Indian pharmaceutical company by revenues and the seventh-largest generic company by sales globally. It is also the second-largest generic company in the US. It has a presence in 155 markets with 27 manufacturing facilities globally. During last year it acquired vaccinerelated research and development assets from Profectus Biosciences. It completed clinical trials for the first metered-dose inhaler (MDI) and received approval for the first nasal product. Currently, the company is planning to restructure its business for streamlining various activities. Technically, the stock is forming a 55-day cup formation and trading near the prior pivot levels. The stock is above all the short and medium-term moving averages. All the moving averages are trending up as the price is at a near pivot high. In fact, the stock is seen consolidating in the broad range of Rs 750-950 for the last 35 weeks after it had broken out of a four years’ resistance line. The MACD has given a buy signal on a weekly chart. The RSI has broken out of a downward channel and is in a bullish zone. The +DMI has moved above the -DMI and ADX. The Elders impulse system has given a buy signal on daily and weekly charts. Accumulate this stock between Rs 955-975 with a stop loss of Rs 932. The short-term target is at Rs 1,061, and the medium to long-term target is at Rs 1,120.

NEULAND LABORATORIES ............... BUY .....................CMP Rs 2483.95

BSE Code : 524558 Target 1 ..... Rs 2,707 Target 2 .... Rs 2,854 Stoploss....Rs 2,330 (CLS)

Hyderabad based Neuland Laboratories is a leading manufacturer of active pharmaceutical ingredients (APIs) and an end-to-end solution provider for the pharmaceutical industry’s chemistry needs. Fundamentally, in Q3FY21, the revenues were up by 21.1 per cent to Rs 245.6 crore and the EBITDA margins increased to 19 per cent from 17.7 per cent on YoY basis. The net profit was up by 21.3 per cent to Rs 26.7 crore. The EPS is at Rs 20.8, up by 150 per cent. Technically, the stock is trading near all-time highs. It has broken out of a six-week cup pattern two weeks ago and is seen sustaining above the breakout level. The stock is trading up by 12 per cent above the 20 DMA. It is also trading above all the short and long-term averages and the moving average is also trending up. The MACD histogram shows an increase in bullish momentum on daily and weekly charts. The RSI has broken out of a symmetrical triangle and is in the bullish zone. The stock is also meeting Mark Minervini’s trend template rules. The Elders impulse system and Pring’s KST has given buy signals. In short, the stock in a clear uptrend and has the potential to move further high. The six-week cup pattern depth is over 22 per cent. Accumulate this stock between Rs 2,465-2,493 with a stop loss of Rs 2,330. The short to medium-term target is at Rs 2,707 and the long-term target is at Rs 2,854.

*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 Apr 19, 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.