Nifty In Technical Charts: So Near And Yet So Far?

The week started with a bang but ended with a whimper! Monday, everyone thought that the US trade war was now a done deal and a gap as high as 400-plus points was being indicated. The actual start was a lot more sedate (around 180+) and ending was even more sober (around 50+).

The next two sessions gave it all away and we closed the gap into last Friday with a dip till 25,750. So, all that effort for nothing? Bank Nifty, though, staged a clear punch to an all-time new high, while the Nifty was about 200 points short of it. Disappointment? Sure. Reversal? No. Unexpected? Not really.

The rise tapped into the top channel of the pitchfork and showed a large red candle. That was enough to tell us that the six-day, four-week run may halt for a while perhaps. There were no specific reasons that emerged for the drop. Unless you consider the political statement about India will do its own thing etc. that was made by the trade minister Goyal.

You see, the market pays attention to some specific news when it is ready to do so. News is always around. It is just that the market picks and chooses. So, after a run and nearing a resistance, it decided to focus on some adverse news. Nothing 'reversal-like' about it. We should simply go to make another higher bottom and possibly continue higher from there once again. But for the many, hungry for new highs, it became a story of so near and yet so far!

Nothing much is lost, though. Banks have done well, punching out new highs, as mentioned. All the banking results were better than expected. The best part I liked was that they all showed loan growth and that is a bigger signal, collectively, than the individual results by themselves. It shows an economy on the mend. Seen from a month’s perspective, Banks and Financials were probably the best performing segment in the market.

The Metals index almost broke out into new all-time highs. Strength here is always a good signal for the sentiment because this is such a highly patronised (by traders and investors) sector. There were some rumblings of revival in Defence with a slew of new orders reviving interest in the sector. Autos were seen faring well as seasonal sales were top notch. As was Consumption. All in all, lots of positives.

Then why the decline towards the end, everyone asks? The only logical answer to that is price, pattern, time and momentum. Market always moves in ebbs and flows, no matter what the events or news flows. In its recent ebb, it ran into some resistance (as described above) and hence a pullback was in order. (Pattern) Right one cue, the FIIs who had turned buyers in cash markets, came in with some selling.

But they remained buyers in Index derivatives, covering their shorts further. See chart 2. If that trend continues, then the positive pressure on the index can continue as well. But a small discordant note was struck by the fact that the Prop data for index futures showed a negative as on Friday, after having been consistently bullish since 6th Oct. This is usually smart money action. (Pattern again).

One of the heartening developments of last week was the good showing of the IT sector. It was the top sector gainer, adding 5% plus for the week, with Infosys also being a top gainer. The results cheered the market and the good tidings continued into the end of the week, with Coforge also turning in a super performance.

Should be good enough to keep the flag flying for the sector and given their decent weightage on the Nifty, should contribute favourably to the upside. The upside gap seen in the IT index chart as seen in Chart 3 is a change this time. Let’s see how that unfolds. It is looking positive for now. (Price and patterns)

Continuing with the derivative variables, let's take a look at the OI PCR chart (see chart 4). The bottom panel in the chart shows the plot of the OI Pcr through time. It is noted that a level around 1.15 seems to be playing a nemesis to position formation for a while (the blue line in the chart). Currently, we have traded up into that zone.

Hence, it could be stated that we may be at a somewhat overbought zone as far as the OI Pcr is concerned. In the past we have seen the market do a pullback from such overbought levels. (Derivative)

Market is also maintaining a small-time symmetry. See chart 5.

There is a 28- week cycle that can be seen. Now whether that will play out is a question mark. The fall from September 2024 high and the rise to the October 2025 high have both taken 28 weeks. A continued rise in coming weeks would mean that it is not a relevant cycle. (Time).

So, from multiple angles, it appears that the market may have reached some kind of resistance zone. Mere desire for new highs alone cannot carry the index to new peaks. There has to be definite new buying. One of the areas that it can come from is continued short covering by the FIIs in Index futures position.

Second area could be the triggers from positive quarterly results. So far, the Q2 numbers have been slightly better than expected. Still many more results to be declared so it may be too early to take a call on this. But leaders have done ok so far. IT, Banks, Realty, Specialty Chem, Cement etc. etc. have seen positive results so far.

Third area where a trigger could emerge may be from new momentum. The recent rise, in most sector indices, have been well accompanied by concomitant momentum. That promises continuation rather than reversals. So, news flow that is deemed positive for the market will probably stoke better momentum ahead.

But a small sense of worry is that all the private banks traded poorly on Friday. If they don’t all recover quickly, Bank Nifty will lose its mojo and will pressure the Nifty downward. See chart 6. Axis Bank has traded OK and SBI results are yet to come.

So, we can see that the market is somewhat delicately poised right now. It is therefore possible that we may see the pullback continue into Monday but by Tuesday, I expect that the positives should begin to kick in. If the market is successful in creating a higher bottom here, then we will have a new all-time high by the first week of November.

Tariff news, Fed news, China news, Q2 results etc. etc. may all contribute towards creating these moves. That leaves us with having to track all these events in the week ahead. Don’t just play with this level or that- those for extreme day traders only. If you are a swing or positional player, you need to get a grip on where the market is going and how it is going to go there, if at all? Once that is decided, then you can worry about targets and things.

Over the past many months, I feel that people have got too mired in this levels thing. Problem is everyone has a level or two! Where do you get off then? Someone or the other is bound to be right out of that whole bunch, right? But as a usable method, it is useless for you.

Instead, if you can understand where the market is headed (largely) and how you are going to position yourself within that movement, what stocks or indices or sectors you need to play within that move, then you are more or less sorted for making some larger amount of money. That should be the objective of a serious market player who is here to build some decent amount of money.

Summing up then, the trend remains sideways to up (because it staged a move higher past recent resistances before getting stuck at newer ones), the breadth improved, the flow of results is encouraging (so far) and FIIs are making some favourable noises.

Last week, I had entitled my piece saying Buy the Dip time is here. Well, the dip is going on. Let’s look to buy. Support are at 25,600/25,450 and then finally 25,280. Dips into those zones, if seen, can be used to buy with a stop below the last one. If the stop is hit, take the loss and move to the sidelines to check what the market’s new intent is. If the prices revive off support, then look for new highs to be created.