Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : With Russia finally invading Ukraine, this escalation of the conflict had the worst possible impact on the global equities with India being no exception! With the overnight reports of airstrikes by Russia, the global markets had already ended on a much weaker note. Following this, Indian markets inherited negative cues, leading to a big gap-down opening. The markets opened lower, grew weaker as the day progressed, and went on to end around the 16200-level. With no recovery coming in, as compared to Wednesday’s close, Nifty ended with a deep cut of 815.30 points.
February monthly derivative series had an expiry to deal with; throughout the day, literally, all strikes saw heavy call writing taking place. February series ended with Nifty losing more than 3 per cent. From a technical standpoint, Thursday’s session has inflicted structural damage on the charts. While completely violating all the trend line pattern supports, the most recent session also saw Nifty breaking down from a bearish ascending triangle. The gap-down opening and the subsequent decline have taken it deep below the 200-DMA, which now stands at 16,894. With this, Nifty now trades below all the three key moving averages.
As per the basic principles of technical analysis, any strong support that is violated and breached is expected to act as resistance when a technical pullback occurs. Nifty has violated the 200-DMA and on its way up, when a pullback occurs, this level will act as a resistance for the markets on a closing basis.
Through pattern analysis of the daily chart, it also appears that Nifty has violated the double bottom supports near the 16,400 level. If Nifty is able to pull itself back above this point, it will form a trading range with the level of 200-DMA acting as a resistance point at higher levels.
The daily RSI is 30.20 and it has marked a new 14-period low, which is bearish. It, however, remains neutral and does not show any divergence against the price. The daily MACD is bearish and is below the signal line. The Indian volatility gauge, India VIX surged a massive 30 per cent to a new 20-month high at 31.9825. Over the coming days, volatility is unlikely to go away. It is likely to persist and we will see the markets scrambling to find a bottom for themselves. The price action behaviour of Nifty against the levels of 16,000 will be crucial to watch over the coming days.
From the sectoral standpoint, all the sectors ended with deep cuts on Thursday. This is a natural phenomenon as with the entire markets getting affected due to any external global event, it is unlikely that we see any sectoral outperformance during such times. However, it is important to note that in times of a technical pullback, the sectors that are beaten down the most will see equally sharp recovery.
This translates into the pockets like select banking and financials, auto, IT, consumption, etc., which would see resilient pullbacks when some stability is seen in the markets.
Over the coming days, if the level of 16,000 is held and defended by the markets, we can expect some stability in the markets.
NIFTY DERIVATIVES: On the expiry day, the level of 16,500 had maintained the highest Put OI accumulation; because of this, in spite of a gap down, Nifty struggled hard to maintain this point. However, relentless Call writing at this point and lower strikes, eventually led Nifty to break down below this point.
Thursday’s session also saw large Put OI additions at 16,000 and 16,200 levels. These zones are expected to act as support over the coming days if the geopolitical conflict shows some intentions of receding. As of today, March series holds over 4.2 million shares as Put OI at 16,000 strike, which indicates a high possibility of this level being held as of now, unless we have a fresh set of negatives to deal with.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
AVENUE SUPERMARTS LTD ........... BUY ............ CMP ₹ 4022.45
BSE Code ...... 540376
Target 1 : ₹ 4,200
Target 2 : ₹ 4,300
Stoploss : ₹ 3,880 (CLS)
â—¼ Current Observation: Avenue Supermarts Limited owns & operates DMart stores. DMart is a supermarket chain that offers customers, a range of home and personal products under one roof.
â—¼ Since the beginning of this month, the stock is seen oscillating in the range of Rs 4,278-Rs 3,950. Currently, it is placed around the lower end of this range, offering a good risk: reward set-up at the current levels.
â—¼ On an MTD basis, the stock is down by nearly 3.2 per cent. Meanwhile, Nifty is down by about 6.5 per cent while Nifty 500 has plunged 7.80 per cent, which indicates relative outperformance by the stock.
â—¼ The 14-period daily RSI is placed in the sideways zone while the MACD line is still above the signal line.
â—¼ Overall, the stock is quite resilient to market fluctuations and is likely to bounce from its important support levels. The stock may witness tremendous upside once the market stabilises and can also test the levels of Rs 4,200, followed by Rs 4,300 in the short term. However, maintain a stop-loss at Rs 3,880.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Inox Leisure Ltd at Rs 417.20 in issue no. 18 (dated February 21, 2022). This week, the bad global cues spoiled the market sentiments and thus, Indian markets had a free fall. Despite bad sentiments, the stock is holding on and maintaining the stop-loss on a closing basis. The stock trades above the key 50-day and 100-day moving averages. Hence, we recommend HOLD.