Nifty In Technical Charts: Bank Some Profits

First they missed the bottom, then a few of them shorted, thinking that the slide should resume, then a few others sold off their pending longs, using the rise as a god sent opportunity, perhaps to get out near even or with some minor loss or maybe, for some, even some gains!  

How many bought? That is a difficult wager to make. But I am willing to take it, saying that many wouldn’t have. Even if they did, it was in the form of a quick sortie-guerilla style, in and out, seldom carrying the position overnight. Kal gir jayego toh? Then the tariff issue seemed to be quietening down but then the Pahalgam thingy propped up! So, more of the same— don’t hold overnight, over the weekend, over a holiday interruption etc.  

In the meanwhile, the index continued moving higher, confounding everyone. 24,500 got pipped on Friday. Aha! It didn't close above, will say many. Elliot wavers will join in a three-wave correction should now unfold, they shout. Gann aficionados will come out with their arcane analysis and say a crash is coming. The fundamental valuation brigade is always around too — results are not good, capex is not happening, this or that or the other is inflationary. Trump is not done yet, the Pakis are not done yet. It never ends, does it? 

So, what's the point, you may well ask? There is just one— follow the market, quoting my favorite guru, Robert Miner. Never your own forecast. Most have made the mistake of following their own gut feel about what will happen next and that, I don’t think, has really helped.  

If you had just done that, here is what you would have got. See chart 1. A 15-day run for 2,500 points!  

First they missed the bottom, then a few of them shorted, thinking that the slide should resume, then a few others sold off their pending longs, using the rise as a god sent opportunity, perhaps to get out near even or with some minor loss or maybe, for some, even some gains!  

How many bought? That is a difficult wager to make. But I am willing to take it, saying that many wouldn’t have. Even if they did, it was in the form of a quick sortie-guerilla style, in and out, seldom carrying the position overnight. Kal gir jayego toh? Then the tariff issue seemed to be quietening down but then the Pahalgam thingy propped up! So, more of the same— don’t hold overnight, over the weekend, over a holiday interruption etc.  

In the meanwhile, the index continued moving higher, confounding everyone. 24,500 got pipped on Friday. Aha! It didn't close above, will say many. Elliot wavers will join in a three-wave correction should now unfold, they shout. Gann aficionados will come out with their arcane analysis and say a crash is coming. The fundamental valuation brigade is always around too — results are not good, capex is not happening, this or that or the other is inflationary. Trump is not done yet, the Pakis are not done yet. It never ends, does it? 

So, what's the point, you may well ask? There is just one— follow the market, quoting my favorite guru, Robert Miner. Never your own forecast. Most have made the mistake of following their own gut feel about what will happen next and that, I don’t think, has really helped.  

If you had just done that, here is what you would have got. See chart 1. A 15-day run for 2,500 points!  

And the only thing that troubled you along the way was—your gut! That created the fears, the doubts, the new narratives, the arguments against etc. etc. All you had to do was slap on a stoploss of some kind, like shown in the chart. Even that kicks in a few days after the low formed. But we had the low tracked, right? So, the date (we had it), the price (the whole market had it at 21,800), the pattern (hammer, the charts had it), the upside gaps thereafter (the believers had it), the one day of shakiness (last Friday), the shrugging off of the weakness (from Monday this week)…we all had this. Did we use them the right way it had to be used? If you did, well, you made some money. No? You need to work on your own psyche then, perhaps.  

Cold facts, right? But that is what it always is, as far as the market is concerned. Realise that the emotions are all within us. The market by itself is non emotional. Look them in the face and move on. Nothing is lost yet.  

The tricky part is, almost everyone is right! Amazing, isn’t it? EW says five-wave rise is seen. Gann technics of one type say some time and astro clusters are at hand. Valuation guys are right in saying mid and small cap are still expensive. If the market goes down next week, then all of them are going to shout I told you so! But what if the market goes up, instead? No one, I think has a plan for that. This reminds me of a time back in 2021 or so, when I entitled one of these pieces that market would face a melt up, while many were looking for a melt down on continued Corona concerns!  

Lets look at that possibility this week.  

One of Gann Time to Price conversion gave us a target of 24,510. Came through. Went higher on Friday. But formed a tall upper shadow candle for the day. Now, is that a cross of the resistance target or not? Clear doji candle for the day. Bank Nifty, likewise, barring the new high bit. So, what’s the bet then? 

I would side with the simple approach of looking at intent. If market wanted to really go lower next week, then we would see some leaning towards bearishness in the week just ended. There, I find that even the hint of weakness of the earlier Friday also doesn’t get a follow through. No price damage during this week. Despite war clouds hanging around India. If bad or scary news cannot move markets lower, then why favour the downside?  

Now, is there anything that adds weight to a possible upside from here? Well, there is growth in GST collection (a robust 12.5%), so businesses are doing ok somewhere, despite what many will have you believe. The RBI is conducting more OMOs, so liquidity infusion continues. There is no recovery in Indian 10-year yields, so more rate cuts are likely here ahead, possibly. Likewise, In the US there is an expectation of three more rate cuts in 2025 itself. The dollar is sliding bit by bit. The FII have turned buyers in India. They are now on the verge of turning index positive after many months. See chart 2. Net short is just 10k contracts—probably a day’s work! This entire year they have been net short.   

Together with this action, they are now going net long in equities (11 straight sessions!) So, do they know something that others don’t? Or perhaps seeing something that others are not? Maybe we ought to check? After all, they bring big bucks to the table.  

Let’s pause to check the trend status here. I love the readings from the Ichimoku set up. Here is table from Neotrader software that captures different time frames. I have not included the levels of the various lines of this style, but focusing on the Scores (a unique feature of Neotrader)  

Let’s look at the daily and weekly scores. The daily Bull score is 77, nice and healthy. That is mainly owing to the sharp surge. But the weekly score is quite anaemic at 21 (with some residual bear score of 7 too). This means that the market has NOT hauled itself out of the trough yet, as far as a trend following method is concerned! The smaller time frames track the intraday trends and since prices have stalled for the last few days, the diminution in their scores is not a surprise. We can ignore them for the moment.  

Where does this leave us? For one, following the daily trend so far has been great and would have paid off. For the next week, I need to track the daily scores to see if they start peeling off, which would then mean that a correction is setting in. On the other hand, if the daily continues to remain firm, it will then help create a better situation for the weekly score, which, if it starts improving, will signal us to continue the bullish approach even if are skeptical about our surroundings. Remember, do what the market asks you to do! 

Chart 3 is the weekly Nifty chart with Ichimoku 

Looking at it, I am not surprised to see the weekly scores are anaemic. So, I wouldn’t hold my breath for an upside breakout early next week. A very determined push is required to produce the required signals to change the scores. Many things will have to come together for that to happen. Perhaps, the scepticism this time is going to be right? Let’s see.  

What this also says is that FOMO of any kind is to be kept on a leash. Chart 4 is Mid Small 400 index weekly chart. It seems like an even tougher job for those stocks to change the sentiment much. The quarterly results will really have to punch out some major winners for this to improve. The Nifty Next 50 isn't too different either.  

So, what all this adds up to is that it may be time to bank some profits that may have accrued from the recent dash upward, assuming that you participated. Or, maybe lighten up some of the earlier longs if they have kicked back into a better position compared to a month ago. Earlier you did that out of fear. This time you can do it backed by data and evidence. For a month or so, shorts were a total no-no. Maybe time for a small rethink on that. But that is only for active trader. See, the limited scores of the Ichimoku (weekly) also argue for some possible ranging. Maybe option sellers may have a ball in the coming week. Are you one? Time to get active then. Automatically, that means option buyers may find it difficult to make money with vanilla long trades. They may have to direct those trades to specific counters showing news or flow- based momentum.  

Not an easy week ahead, then. As usual, results driven moves and outliers will move. But not-so-firm sentiment is now getting backed by data to stay that way. Reduce activity and wait for trades to come to you, than for you to chase them.  

CK Narayan is an expert in technical analysis, the founder of Growth Avenues, Chartadvise, and NeoTrader, and the chief investment officer of Plus Delta Portfolios.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.