Nifty In Technical Charts: Two-Week Lull Is Possible

The week of Dec. 16, 2024 was the important one. For more reasons than one. See chart 1 for the weekly Nifty fut.

The week of Dec. 16, 2024 was the important one. For more reasons than one. See chart 1 for the weekly Nifty fut.

I will refer to the more recent price action. This is in the form of a text box and several points need to be noted.

First, the week ended had a small body and a lower shadow. So, the week saw a bit of a resilience from the lower levels. But the overall placement of the weekly candle doesn’t really grant it any special significance.

Second, the long body of Dec. 16 is the current ‘ruling’ candle, in a manner of speaking. After a brief four-week rally from the November 2024 low (the deepest point in the ongoing reaction from September 2024 high), this candle has sought to renew the decline. So, its contours continue to hold out as the deciders for judging the trend. Over the last two weeks, we find small range candles that remain within the confines of the long body red candle of Dec. 16. The inability of the trends to carry on below the Dec. 16 candle low, therefore, is sending out a message that the candle may have created a higher bottom to the November low of the Nifty.

Third, the rallies of the last two weeks have been unable to cross beyond the 50% of the long body candle of Dec. 16. This bespeaks a weak bull, unable to get past even the first of the hurdles. Therefore, this reveals the continued possibility of renewed bearish attacks on the low of the Dec. 16 weekly candle (at 23,575). Therefore, swing traders of the market need to yet keep a stoploss level beneath this level on a closing basis.

Having discussed the importance of the Dec. 16 weekly bearish candle, let us also address the other signals present on the same chart. To the left, one can note the prior consolidation zones marked on the chart. Usually, these areas tend to act as a good support/resistance area when they are approached again in the future. We see on the chart that the first of the two congestion zones have acted briefly and then be broken. Around the 24,000 levels, the Nifty is currently struggling to maintain itself. It is a tentative moment, no doubt, and hence there is a need to be more alert and not jump to conclusions about emergence of trends.

In addition, we can note that the third consolidation from the past is positioned near the 22,000 levels and that is large enough a chasm that it should not be ignored by traders.

Also, the circled zone of prices is essentially a large consolidation zone, not really encapsulated by smooth borders. This indicates a possible confused action from market players, where they are unable to take a firm view of which way to take the trends. Notice that within this circled zone, there are several long body bearish candles with red candles dominating the zone. This implies that post September 2024, it is the bears that are trying to take hold of the market.

Since the last minor swing low (the week of Aug. 5, 2024) stands broken, the swing is reset to down and it will require much new action to the upside for it to be reset to up again. Therefore, this situation is also warning us once again not to be in any haste to pronounce any rally as being a resumption of the old uptrend. The clear overhead resistance that has to be regained and held would be the area above 24,925. Until then, bulls cannot breathe easy.

Finally, outside of the circled area, I have placed three red dots denoting the nearest time change areas. As I have stated often, more meaningful changes occur when price action coincides with time goal time periods. This is awaited around the 20-26 time-window of January.

Coming to the Bank Nifty, it continues to show a slightly different picture to the Nifty fut. See chart 2 for the same.

The price action here has been more orderly with the lower zone being quite well defined around 50,000 levels. Crawling up into that zone is also an intermediate trend trendline, creating a cluster support. Ideally, if the prices are not to crack, then this zone needs to hold. So, 49,300-500 is support stoploss zone. Similarly, we can spot two long body supply candles within the current consolidation and this is in the 53,500-53,900 zone. So, that is the breakout zone for the near future. Within these two levels, consider the index to be ranged.

This now brings us to a small crossroad. If both the main indices are not wearing their bullish hats, then would it be wise to invest or even attempt to trade? Certainly not the way to think!

Bullish markets are ones that have the tailwind factor being supplied by the market and this tailwind helps indices and stocks move faster towards their goal. But when market tailwinds are seemingly absent, then its positive impact are absent. It then drops down to the role of either some sector tailwind or the individual stock tailwind to create the additional push the moves of stocks. Hence, we should shift our attention to looking for sector tailwinds or find stock tailwinds.

Typically, these are found at the times of quarterly results. Hence, the need to pay close attention to them periodically.

As an example of relative outperformance, see chart 3, Cnx IT relative to Nifty and to NSE500.

Over recent weeks, when the indices have been into a zone, the Cnx IT has been outperforming both the Nifty and the NSE500. This would suggest that investment into IT stocks would have been a lot more profitable. As of now, that situation continues but at a diminished pace.

The same kind of analysis can be done at a stock level too. In the week just concluded, we had two successive elements of inputs for outperformance. The first was the surprise in auto monthly sales that lit up the auto stocks on Thursday and on Friday, the stock of D-Mart in particular. Since the auto sector is one of heavy weights of the Nifty, the trigger in that sector provided the sector tailwind benefitting the Nifty as well, creating a large move not just in auto stocks but also in the Nifty. However, in the case of D-Mart, it did not pack the punch to provide some impetus to the index and hence it could power up the stock alone. Thus, you can see how you profit even when market indices are not signalling anything major by way of action. Just remember that presence of index tailwinds at this time would probably have exaggerated the signals that emerged in either auto or retail sectors.

It is possible that flow of results for about a week into Q3 numbers declaration, we could start seeing evidences of cross-tailwinds, but for that we may have to wait a week or two. Thus, we may spend the coming set of days playing ranging markets with whatever opportunities emerge on a daily basis. If you would rather wait for better signals, then this may be a good time to take a relaxing holiday.