NIFTY Index Chart Analysis

REMAIN OPTIMISTIC BUT WITH CAUTION!

The equity market took a breather last week as the global markets rallied. The Nifty tested the gap area on Monday, but the opening high was short-lived as profit booking emerged at higher levels and the index failed to sustain above the 38.2 retracement level. On the weekly chart, the Nifty formed an inside bar last week. As a rule, a move above the previous bar high is positive.

The index did open above the previous bar high on Monday but it failed to sustain at a higher level, and as a result it formed a bearish belt hold-like candlestick pattern, which has negative implications. Normally, the counter-rallies end at a 50 per cent retracement level most of the time. 

The gap area resistance and the 61.8 per cent retracement levels are at the same level at 16,178. This level can be tested in the most bullish case scenario. The Nifty is trading below all the key moving averages. We need to watch the behaviour around 20 DMA, currently at 15,944. As of now, it is trading just 1 per cent below this crucial short-term average. It is 3.05 per cent below the 50 DMA and 8.04 per cent below the 200 DMA. All these moving averages are in a downtrend. The Anchored VWAP has acted as stiff resistance in the recent swings. Now, it is placed at 16,154, and it is also very near to the 61.8 per cent retracement level.

Among the momentum oscillator, the RSI is facing resistance at the sloping channel line. For bullish strength, the RSI has to sustain above the 55 mark, which is a prior swing high. The current upside is because of the positive divergence in the RSI. This divergence will get a confirmation if the RSI moves above 55 for bullish implications. Meanwhile, the MACD has given a bullish signal on the daily chart. The MACD line also shows a positive divergence. The fact is that these are counter-trend characteristics. The basics of a trend reversal are that the price has to make a new higher high and then a higher low.

In the current market conditions, we are far from it, i.e. creating a new higher high. As stated earlier, counter-trend rallies in bear markets can usually be described as sudden, severe and explosive. They happen suddenly with the market making new swing lows one day and then ripping back to the upside immediately after. After this sudden influx of these buyers have done their buying, the market sort of wakes up to the fact that conditions really haven’t changed much in the last couple of weeks. All these are headwinds that cause the stocks to decline broadly.

We can expect that the Nifty upside movement to be capped at the 15,989 and 16,178 levels. At the same time, Monday’s high is also crucial for the bulls. The Nifty closed below the opening level on Monday and that is the first sign of exhaustion in the relief rally. A close below the zone of 15,600-15,700 will act as confirmation of resumption of downtrend. Relative Rotation Graphs (RRG) analysis shows that the Nifty Bank, Auto and FMCG indices are firmly placed inside the leading quadrant. These sectors are likely to outperform the broader Nifty 500 index relatively.

The oil and gas index is also in the leading quadrant but is losing its relative momentum. The IT index is improving its performance in the lagging quadrant and may see some improvement in momentum. Overall, the market has to sustain at higher levels and close above the 16,178 level for an uptrend to continue. Failure to do so would result into a range-bound move between the zones of 15,600 and 16,178. Stockspecific activity will be in focus. Select the stock which has high relative strength since that will be in action. Overall, we would suggest being cautiously optimistic at the current juncture.

STOCK RECOMMENDATIONS

BLUE DART EXPRESS LTD .......... BUY ........ CMP ₹7,652.50

BSE Code : 526612
Target 1 : ₹8,400
Target 2 : ₹8,800
Stoploss : ₹7,200(CLS)

Blue Dart Express Ltd. is a leading integrated transportation and distribution company that offers delivery of consignments to over 35,000 locations in India. It also covers 220 countries and offers an entire spectrum of distribution services including air express, freight forwarding, and supply chain solutions and customs clearance. The stock touched a new high on Tuesday with a higher volume. As it has touched a new high, the price has been above all the moving averages and they are in an uptrend. Currently, the stock is 18.27 per cent above the 200 DMA and 11.3 per cent above the 50 DMA. The stock has formed a strong bullish bar on the Elder impulse system. The RSI is in a strong bullish zone in all timeframes. The MACD shows a strong momentum. The ADX (22.62) shows a decent strength in the trend. The Mansfield relative strength is above 1.92 and shows outperformance compared to the broader market. The TSI and KST indicators are bullish in the long-term charts. In short, the stock is above all the historical resistances. You can accumulate this stock in the zone of ₹7,500-7,600. Maintain a stop loss at ₹7,200. The short-term to mediumterm target is placed at ₹8,400 followed by ₹8,800.

MAHARASHTRA SEAMLESS LTD.......... BUY ........ CMP ₹644.15

BSE Code : 500265
Target 1 : ₹755
Target 2 : ₹790
Stoploss : ₹580 (CLS)

Maharashtra Seamless Ltd. (MSL) was established in 1988 to manufacture seamless pipes and tubes with the finest quality and wide product range using the world-renowned CPE technology acquired through technical collaboration with Mannesmann Demag Huttentechnik Gmbh (MDH), Germany. The plant was commissioned in February 1992. The plant has an installed capacity to produce 150,000 TPA of carbon and alloy steel hot finished and cold finished seamless pipes. The stock has broken out of a 10-week cup pattern. It is moving in a staircase manner by forming higher highs and higher lows. Its relative price strength is at 89 and this shows a good price performance.

The Mansfield relative strength is at 2.13, showing an outperformance compared to the broader market. It is trading 14.62 per cent above the 50 DMA and 29.47 per cent above the 200 DMA. All the short-term and long-term moving averages are in an uptrend. The weekly MACD has given a fresh buy signal. The RSI is in a strong bullish zone in all timeframes. The Elder impulse system has formed strong bullish bars. The TSI and KST show strong bullishness. It is also above the Anchored VWAP resistance. In short, the stock is in a very strong uptrend and closed at a new high. Buy this stock in the zone of ₹648-655. Maintain a stop loss at ₹580. It can test ₹755 in the short-term while the medium-term target is placed at ₹790.

(Closing price as of June 28, 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.