Nifty In Technical Charts: New Macro Dominoes In Play

We were looking for higher levels this week and we got them. I have been looking for new highs soon and we almost got them last week. So, in that sense, from an index perspective, the market did what needed to be done. Then why are most people unhappy? It is because everyone’s portfolio is still sulking.

Now isn't that a tremendous divergence? Markets at a high and portfolios sucking wind. I think this is because far too many things are happening right now at the same time, so much so that it is difficult to know which domino is moving which.

For instance, the Q2 numbers were, well, palatable. Out of some 2,000 companies that declared results, the growth in net sales is around 6.8–7%. Nothing great. But nothing bad either. Trump tariffs were not so much a factor (even in affected industries like shrimp exports) but neither was the impact of GST cuts.

In fact, the growth in net sales for consumer goods firms was more or less the same as in the June quarter, at 8.6%.  Autos were a definite pickup though. The impact of the GST rate cuts will spill over to Q3, as will the festive spending.

In spite of all these uncertainties, the Indian corporate sector has held up well, if the ROCE is any guide. That is one fundamental reason why the market has seen support. Now, will the RBI cut rates, given the low inflation print? And finally, will the trade deal happen? These factors continue to act as supports. (Chart 1)

A new domino has emerged in the form of Japan’s 10-year bond yield. The price made a high of 1.84 last week (Chart 2). The Japanese government bonds hit their highest since 2008. This development has far more profound implications than any single market dislocation, for it signals the end of a three-decade era of cheap money.

Japanese treasuries hold the largest amount of US Treasury notes, allowing US government access to cheap funds. In Japan now, the government has now announced economic stimulation and increase in bank rates, so this is not going to be a one-off thing.

What sort of dominoes this three-decade-old arrangement shall set off is quite unknown yet, as it could lead to a structural shift in the risk-return matrix that has governed Japanese capital allocation for a generation. The Yen Carry trade has ruled all markets for long and what will happen there next is a big question mark. Chart 2

Now, Trump has fired another salvo from another gun, stating that a new form of quantitive easing shall be launched from the first week of December. The last two occasions when this QE happened (2008 and 2020) the markets were in a crisis. Right now, the markets are trading at their peak. How is this one going to play out? I have no idea, just raising an important element here.

Getting back to our markets many will argue that significant divergence between indices and broader markets should be considered a bearish signal (Chart 3). Against the new high seen in Chart 1 the prices represented by Microcap 250, Small cap 100 and Nifty Next 50 are showing the first hints of pattern change (lower top lower bottom). Chart 3

Therefore, we will be at a stage where fundamentally things are expected to happen but technically something’s different is happening in a few areas.

Would this be because of recent burst in the prices of gold and silver? Possibly, non-performance of equities especially mid and small caps could have led to shift of money from equities to bullion.

A recent report indicated that the 2025 Indian savings were diverted towards Gold ETF’s, the total sum of which exceeded that which had occurred the cumulative of over the past five years.

Such large changes do not get reversed quickly, so it is possible that Indian investors have come to a realisation that they should be having gold and silver as part of the portfolio. It may be noted here the above figures referred to are ETF only and does not take into account any addition by way of jewellery and physical gold.

The markets have remained resilient in the face of all these new dominoes and if it continues to do so, then they are sending us a signal that the continued bullishness may prevail, given the fact that all these new dominoes can possibly be very large macros. I would want to simply stick to with the market signal as they emerge from the charts. Chart 4

Our favourite Trend following indicator (Chart 4) is still in good shape and so long as this remains undisturbed on the weekly timeframe, there is no point in thinking different. I will track the markets primarily through this chart using daily or intraday timeframes to spot and act upon fresh buying opportunities.

The daily KS line and Nifty spot is at 25,700 and that maybe kept as the nearest stoploss on swing trades. For longer-term players, the KS line is present at 25,300 and until that is not compromised, I recommend that we should continue to use a buy-on-dip approach.