NIFTY Index Chart Analysis

A CALL FOR CAUTIOUS OPTIMISM

The Nifty has completed its counter-trend rally to the 61.8 per cent retracement level and filled its opening downside gap of June 13 on expected lines. After filling this gap, it has also achieved the pattern target within the current counter-trend rally, and after achieving its target the index is hesitant to continue its bullish momentum. 

In several instances, the counter-trend rallies were limited up to 3-4 weeks and it ended at around the 78.6 retracement levels. And, currently, the 78.6 per cent retracement level is at 16,449. The current swing has entered into the fourth week and is at a matured stage, testimony to which is that the Nifty has already made two lower low and lower high bars.

That said, on the daily chart, the leading indicators are not showing any signs of weakness. The RSI has been oscillating around the 55 zone, which is a prior swing high and has broken the channels. And as the momentum has flattened, it has once again come back inside the channel. Going forward, in any case if the RSI moves above the 60 mark, market conditions would improve significantly. The weekly RSI is at the prior minor high and a close above 47 will be positive. The daily MACD has just crossed the zero line and the histogram shows positive momentum.

The +DMI moved above the -DMI, but the ADX is still looking southwards, which means the trend strength is not so strong. Importantly, the relative momentum and relative strength ratio are still below 100, implying that the Nifty is underperforming the broader market. Generally, the broader market index Nifty 500 will be a benchmark for gauging the relative strength ratio and momentum. A majority of sector indices are still lagging in the relative performance. At the same time, a majority of Nifty 50 stocks are trading with below 100 relative strength ratio.

About 30 stocks of Nifty 50 are in either the weakening or lagging quadrant. Only 15 stocks are in the leading quadrant. Out of them, the FMCG and BFSI sectors are dominating. The positive development is that institutional selling has eased a bit. Last Friday’s high of 16,275 is a crucial immediate resistance for the coming fortnight. Above this, 16,449 is another resistance. On sustaining above the level of 16,449 we will get a clear direction. Meanwhile, the level of 16,050-100 is the critical support zone and any close below this is negative for the market. The 50 DMA is placed at 16,052.

On a 75-minute chart, the MACD shows an overbought condition accompanied with decline in momentum. We need to observe the retracement behaviour on the downside. Fresh short opportunities will come only below the level of 16,000. Otherwise, continue to retain a cautiously optimistic approach. The relative rotation graph (RRG) analysis shows that still a majority of sector indices are lagging the momentum. Although all sector indices closed in the green in the previous week, the RRG charts show a different picture. Banks, FMCG and automotive indices are in the leading quadrant, but the momentum is weakening.

The financial services index has been in the improving quadrant for the last four weeks and that is the case with the realty index as well. All the other sector indices are in either weakening or lagging quadrants. In any case, if the Nifty fails to move above 16,276 and closes below 16,000, a fresh downside move will begin. Below the level of 16,000, the target is placed around the 15,500 mark. Meanwhile, a close above 16,276 would open the gates for a further upside towards the level of 16,449. Positional trading will become difficult as the gaps have become common in these days. To reiterate, try to be cautiously optimistic for now.

STOCK RECOMMENDATIONS

GUJARAT FLUOROCHEMICALS ............... BUY ......... CMP Rs3,087.50

BSE Code : 542812
Target 1 : Rs3,494
Target 2 : Rs3,675
Stoploss : Rs2,960(CLS)

Headquartered in Noida, Gujarat Fluorochemicals Limited (GFL) is a part of the INOX GFL Group. The group has diversified business segments comprising fluoropolymers, speciality chemicals, wind energy and renewables. GFL is a leading producer of fluoropolymers, fluorospecialities, refrigerants and chemicals for applications in varied industries. It derives its strength from expertise in fluorine chemistry, vertical integration from natural minerals to fluoropolymers and strong research and development, enabling it to provide one of the best quality products meeting all regulatory compliances globally. With three manufacturing facilities in India, a captive fluorspar mine in Morocco, offices and warehouses in Europe and USA and a marketing network spread across the world, GFL is one of the established players in its sphere. Technically, the stock has formed a bullish flag on the weekly chart and is trading near the prior pivot. Recently the 50-week moving average acted as support. Importantly, the short-term and long-term averages are in the uptrend. The MACD is about to give a buy signal above the zero line. The 20-period RSI is above the 50 zone and near a strong bullish zone. Its RRG relative strength is very strong. And the relative price strength is as high as 86, which clearly shows outperformance compared to the other listed stocks. The stock also meets the CANSLIM characters of investing. Its EPS strength is at 67, showing fair earning growth. The buyer demand at A is evident from the recent demand for the stock. The master score of B is close to being the best. In short, the stock is poised for a bullish breakout. A move above Rs3,080 is positive and it can test Rs3,484 in the short term. In the medium term it can test Rs3,675.

ADANI TOTAL GAS ......................... BUY ..........................CMP Rs 2798.35

BSE Code : 542066
Target 1 : Rs3,050
Target 2 : Rs3,300
Stoploss : Rs 2,630 (CLS)

Adani Total Gas, part of Adani Group, has been developing city gas distribution (CGD) networks to supply piped natural gas (PNG) to such sectors as industrial, commercial and domestic (residential) along with compressed natural gas (CNG) for the transport sector. The company has already set up city gas distribution networks in Ahmedabad and Vadodara in Gujarat, Faridabad in Haryana and Khurja in Uttar Pradesh. It is the world’s second-largest liquefied natural gas company. The company is a joint venture between Adani Group (37.4 per cent) and Total Energies (37.4 per cent). In the last quarter, it added 20 CNG stations and the total number of stations increased to 244. PNG home connections increased to 5.06 lakhs. The stock has broken out of a 12-week consolidation and is trading above the prior pivot. The price is above the key moving averages. The stock is 13 per cent above the 10-week average and 40 per cent above the 200 DMA. For the past four weeks, it has formed strong bullish candles and moved above the prior swing high. Currently, it is at a lifetime high. The ADX (27.95) shows solid trend strength. The MACD line is above the zero line and signal line and has given a fresh buy signal. The RSI is in a strong bullish zone, above its 20-period average. The Elder impulse system shows that the stock has formed a series of strong bullish bars. The TSI and KST gave a fresh bullish signal. In short, the stock has broken out of consolidation and registered a bullish breakout. A move above Rs2,800 is positive and it can test Rs3,050 in the short term. In the medium-term to long-term, it can test Rs3,300. Meanwhile, a stop loss at the level of Rs2,630 is recommended on a closing basis.

(Closing price as of July 12, 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.