NIFTY Index Chart Analysis

MARKETS REACT TO POSITIVE MOVES

The past fortnight has seen the markets, both global and domestic, under a massive, short squeeze which propelled the indexes higher with the markets recovering the bulk of losses that have been suffered in the recent past. While the geopolitical tension between Russia and Ukraine showed little signs of simmering down, the markets saw a huge relief rally over the past nine sessions. The week was a truncated one with Friday being a trading holiday on account of Holi. Nifty witnessed a relentless surge. While adding 656 points to this week’s rally, it has bounced over 1,616-odd points from its most recent low point. 

From a technical perspective, it is important to note that the most recent price action has seen Nifty moving past its 200 DMA, which presently stands at 16,997. In the event of any consolidation, this level is expected to play out as an important support level on a closing basis. Apart from this, the index has closed near the 50 DMA, which is at 17,261 and just a notch below the 100 DMA which presently stands at 17,380. It is also important to note that Nifty has moved significantly higher and above the lower edge of the bearish descending triangle that it had violated.

With this level falling near 16,800 and 200 DMA at 16,997, the zone of 16,800-17,000 makes up for a crucial support zone for Nifty in the immediate short term. The pullback has been remarkable and significant. However, if we add a critical angle to this, it is worth observing that the bulk of this rally has come purely on the back of short covering. There has been little buying support – this is more than evident from the futures and options data as well. In the current month, Nifty futures shed a significant amount of net open interest along with a move on the higher side.

A rise in price with a fall in the OI would indicate that the up move has come on the back of short covering activity. The markets also digested the Federal Reserve’s decision of the hike in interest rates. Earlier, the Federal Reserve was all set to raise the interest rates by 50 bps. However, given the geopolitical tensions that erupted between Russia and Ukraine, it was widely expected that it would limit its increase in interest rates to 25 bps. The actual rise was of 25 bps and this was received positively by the markets.

Another thing that acted in favour of the markets was crude oil’s retracement from its most recent high of USD 139 to sub-100 levels. Although crude oil has once again bounced back above 100, it remains off its recent high point. In any case, Nifty has strong pattern resistance in the zone of 17,300-17,500. First, it has 100 DMA at 17,380 to face; it also has 17,500 levels acting as a crucial resistance point as per the futures and options data. So, even if the markets open on a higher note with the beginning of a new week, the level of 17,500 may act as a stiff resistance for the markets.

The RSI, which is at 57.20, has marked a new 14-period high. It remains neutral and does not show any divergence against the price. The MACD stays bullish and above the signal line. There was a gap on Thursday and it was sustained throughout the day. This had led to the formation of a rising window on the candles. Such candles usually resolve with a move on the upside, which requires a confirmation. It may so happen that Nifty may open on a stronger note and then see consolidation at the higher levels. From the sectoral standpoint, there are possibilities of witnessing defensive plays unfolding in the event of any imminent consolidation.

If this happens, we can expect traditionally defensive pockets like IT, pharmaceuticals, FMCG and consumption putting up a resilient performance. This is the time when the up moves, if they continue to happen, must not be chased. In the event of the current technical pullback getting extended, all moves on the upside should be used in protecting profits and taking some money off the table. A look of the derivatives data presents an interesting picture. The highest call OI accumulation is presently at 17,300. However, the second-highest call OI concentration is on 17,500. This means that even if the move on the upside gets extended, it is unlikely that the level of 17,500 will be taken out too soon.

STOCK RECOMMENDATIONS

ICICI PRUDENTIAL LIFE INSURANCE CO. LTD ..................... BUY ....................... CMP ₹ 477.60

BSE Code : 540133
Target 1 : ₹ 525
Target 2 : ₹ 545
Stoploss. ; ₹ 465 (CLS)

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank and Prudential. Since the commencement of operations in FY 2001, the company has been one of India’s leading private life insurers. ICICIPRULI tested its high point near ₹ 725 and after that it witnessed strong and significant decline. The corrective move took the stock to its double bottom support that exists in the range of ₹ 420-440. This corrective move took the stock below all the key moving averages. However, a few important signs have emerged which hint at a potential technical up move in the stock.

The stock has rolled inside the improving quadrant of the relative rotation graph when benchmarked against the broader Nifty 500 index. This means a potential end to the relative underperformance of this stock. The most recent price decline also came with a strong bullish divergence of the RSI against the price. While the price made lower lows, the RSI did not – this led to a strong bullish divergence of the RSI against the price. If the present technical structure resolves on expected lines, a technical pullback may help the stock test the ₹ 525-545 levels. Any close below ₹ 465 will negate this view.

BOSCH LTD. ................................. BUY ........................... CMP 14,263.55

BSE Code : 500530
Target 1  ₹ 15,000
 Target 2  15,650
 Stoploss 13900 (CLS)

Bosch Limited is a leading supplier of technology and services in the areas of mobility solutions, industrial technology, consumer goods, and energy and building technology. Additionally, Bosch has, in India, the largest development centre outside Germany for end-to-end engineering and technology solutions. While the automotive and the automotive ancillary group underperformed, BOSCHLTD was no exception. From the high of ₹ 19,250 the stock has witnessed a sharp corrective move over the past months. This took the stock to the low point of ₹ 13,865. This level also was a multi-month trend line pattern support for the stock.

The stock has attempted to find a base for itself and form a potential reversal point. The most recent price move has come with a strong bullish divergence of the RSI against the price. The MACD is bearish and below the signal line. However, the sharply narrowing slope of the histogram shows that MACD may be on the verge of reporting a positive crossover. A fresh PSAR buy signal has emerged. The last phase of the corrective move came with high volumes. This also hints at a potential bottom formation for the stock. If the reversal continues to take place on expected lines, the stock may test the ₹ 15,000-15,650 levels. Any close below ₹ 13,900 will negate this view. 

(Closing price as of Mar 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.