The Nifty defends support trendline has been in a strong uptrend since the beginning of 2024, hitting new all-time highs on several occasions. However, the index has also faced some resistance near the 22,000 level, which has proved to be a psychological barrier for the bulls. In the last week of January, the index witnessed a sharp correction, falling below the 21,000 mark, as global markets turned volatile due to rising inflation and interest rate fears.
However, the index managed to bounce back from the support trendline, which has been connecting the higher lows since October 2023. The trendline has acted as a strong support for the index, as it has defended it on multiple occasions. The index closed at 21,782.50 on February 9, 2024, up 0.30% from the previous close. The index has also reclaimed the 50-day exponential moving average (EMA), which is another positive sign for the bulls.
The index now faces a crucial resistance at 21,850, which is the 61.8% Fibonacci retracement level of the recent fall from 22,126.80 to 20,629.90. A decisive breakout above this level could pave the way for a retest of the 22,000 mark, which is the next major hurdle for the index. On the downside, the support trendline and the 50-day EMA are the key levels to watch, as a breach of these could trigger a deeper correction.
In this blog post, we will discuss some of the technical indicators and trading strategies that can help investors and traders analyze the Nifty 50 index and take advantage of the prevailing trend. We will cover the following topics:
Nifty technical analysis using moving averages, oscillators, and pivots
Nifty support and resistance levels using price action and Fibonacci retracements
Nifty trendline breakout and its implications for the index
Nifty 22,000 target and the factors that could drive the index towards it
Nifty trading strategy using gap fade, 5-minute candlestick chart, and short straddle
BEST BOOK: TECHNICAL ANALYSIS👉BUY NOW
Nifty defends support trendline Nifty technical analysis using moving averages, oscillators, and pivots
One of the most popular tools for technical analysis is the moving average, which is the average of the closing prices of a security over a specified period of time. Moving averages help to smooth out the price fluctuations and identify the trend direction and strength. There are different types of moving averages, such as simple, exponential, and weighted, depending on how the data points are weighted. Generally, the longer the period of the moving average, the smoother the curve and the slower the reaction to price changes. Conversely, the shorter the period of the moving average, the more sensitive it is to price movements and the more prone it is to whipsaws.
Moving averages can be used to generate buy and sell signals based on the crossover of two or more moving averages. In the dynamic realm of financial markets, a bullish crossover materializes when a shorter-term moving average assertively crosses over a longer-term moving average, signaling a shift towards upward momentum. A bearish crossover occurs when a shorter-term moving average crosses below a longer-term moving average, indicating downward momentum. Moving averages can also act as dynamic support and resistance levels, where the price tends to bounce off or break through the moving average line
Another tool for technical analysis is the oscillator, which is a momentum indicator that measures the speed and direction of price movements. Oscillators range from 0 to 100 or -100 to 100, depending on the type of oscillator. Some of the common oscillators are the relative strength index (RSI), the stochastic oscillator, and the moving average convergence divergence (MACD). Oscillators can be used to identify overbought and oversold conditions, divergence and convergence, and trend reversal signals.
Overbought and oversold conditions occur when the price reaches extreme levels, indicating a possible reversal or correction. For example, the RSI is considered overbought when it is above 70 and oversold when it is below 30. Divergence and convergence occur when the price and the oscillator move in opposite or the same directions, indicating a weakening or strengthening of the trend. For example, a bullish divergence occurs when the price makes a lower low but the oscillator makes a higher low, suggesting a potential reversal to the upside. A bearish convergence occurs when the price makes a higher high but the oscillator makes a lower high, suggesting a potential reversal to the downside.
A third tool for technical analysis is the pivot point, which is a price level that is calculated using the previous day’s high, low, and close. Pivot points are used to determine the intraday support and resistance levels, as well as the overall market sentiment. The basic pivot point formula is:
OPEN YOUR ACCOUNT, M,STOCK👉CLICK HERE
Based on the pivot point, the support and resistance levels are calculated as follows:
Pivot points can be used to identify the trading range, the breakout points, and the entry and exit points. Generally, the price tends to trade between the support and resistance levels, unless there is strong momentum or a news event that causes a breakout. A breakout above the resistance levels indicates bullish sentiment, while a breakout below the support levels indicates bearish sentiment. Pivot points can also be used to set stop-loss and take-profit orders, as well as to gauge the risk-reward ratio.
In the next section, we will apply these technical tools to the Nifty 50 index and analyze its support and resistance levels.
Nifty support and resistance levels using price action and Fibonacci retracements
Another way to identify the support and resistance levels for the Nifty 50 index is to use the price action and the Fibonacci retracements. Price action is the study of the movement of the price over time without using any indicators or formulas. Price action can help to spot patterns, trends, and reversals in the market, as well as the key levels of support and resistance. Some of the common price action patterns are the candlestick patterns, the chart patterns, and the trendlines.
Candlestick patterns are formed by the opening, high, low, and closing prices of a security for a specific period of time, such as a day, an hour, or a minute. Candlestick patterns can indicate the sentiment and the psychology of the market participants, as well as the potential direction of the price. Some of the common candlestick patterns are the hammer, the shooting star, the doji, the engulfing, and the harami.
Chart patterns are formed by price movements over a longer period of time, such as weeks, months, or years. Chart patterns can indicate the continuation or reversal of the existing trend, as well as the potential target and the timeframe of the price movement. Some of the common chart patterns are the head and shoulders, the double top and bottom, the triangle, the wedge, and the flag.
Trendlines are straight lines that connect the higher highs or lower lows of the price, indicating the direction and strength of the trend. Trendlines can act as dynamic support and resistance levels, where the price tends to bounce off or break through the trendline. Trendlines can also indicate trend reversal signals, such as the trendline breakout or the trendline failure.
Derived from the Fibonacci sequence, Fibonacci retracements hinge on a numerical series where each subsequent number is the sum of the two preceding numbers, exemplified by the sequence 1, 1, 2, 3, 5, 8, 13, and so on. Fibonacci retracements are calculated by dividing the vertical distance between two extreme points (usually the high and the low) of the price movement by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. Fibonacci retracements can act as static support and resistance levels where the price tends to reverse or retrace from these levels. Fibonacci retracements can also indicate the potential target and the depth of the correction or pullback.
OPEN YOUR ACCOUNT, 5PAISA👉CLICK HERE
In the next section, we will apply these price action and Fibonacci retracement tools to the Nifty 50 index and analyze its support and resistance levels.
What is the Nifty 50 index?
The Nifty 50 index is a benchmark index for the Indian stock market, comprising 50 of the largest and most liquid companies listed on the National Stock Exchange (NSE). It represents about 59% of the free-float market capitalization of the stocks listed on the NSE as of September 2023. It is used for various purposes, such as benchmarking fund portfolios, index-based derivatives, and index funds.
The Nifty 50 index was launched in April 1996 and is calculated using the free float market capitalization method. The index is owned and managed by NSE Indices Limited, a subsidiary of NSE1. The index has been in a strong uptrend since the beginning of 2024, hitting new all-time highs on several occasions. However, it has also faced some resistance near the 22,000 level, which has proved to be a psychological barrier for the bulls. The index closed at 21,782.50 on February 9, 2024, up 0.30% from the previous close.
What are the sectors and companies that make up the Nifty 50 index?
The Nifty 50 index is composed of 50 companies from 14 different sectors of the Indian economy. The sectors and their weights in the index as of January 2024 are as follows:.
| Sector | Weightage (%) |
|---|---|
| Financial Services | 38.66 |
| IT | 16.64 |
| Oil & Gas | 11.35 |
| Consumer Goods | 10.79 |
| Automobile | 5.06 |
| Pharma | 4.11 |
| Metals | 3.67 |
| Telecom | 2.87 |
| Cement & Cement Products | 2.29 |
| Power | 1.69 |
| Construction | 1.06 |
| Services | 0.77 |
| Fertilizers & Pesticides | 0.55 |
| Media & Entertainment | 0.49 |
The top 10 companies in the index and their free-float market capitalization as of January 2024 are as follows:
| Company | Sector | Market Cap (in Crs) |
|---|---|---|
| HDFC Bank | Financial Services | 9,32,000 |
| Reliance Industries | Oil & Gas | 8,64,000 |
| Infosys | IT | 6,75,000 |
| HDFC | Financial Services | 5,40,000 |
| ICICI Bank | Financial Services | 5,10,000 |
| TCS | IT | 4,80,000 |
| Kotak Mahindra Bank | Financial Services | 4,20,000 |
| Hindustan Unilever | Consumer Goods | 3,90,000 |
| ITC | Consumer Goods | 3,00,000 |
| Bajaj Finance | Financial Services | 2,85,000 |
The Nifty 50 index is a widely used benchmark for the Indian stock market and reflects the performance and sentiment of the economy. The index is calculated using the free float market capitalization method, which means that only the shares that are available for trading in the market are considered for the index calculation. The index is rebalanced semi-annually, and the changes are effective from the last working day of March and September 2. The index is owned and managed by NSE Indices Limited, a subsidiary of the National Stock Exchange (NSE).
