Last week’s letter raised the possibility of the prices now getting into a rally as the expected price and time windows had been reached. The rally that began last Friday has extended into the week just ended and carried the Nifty from the lows of 18,850 to around 19,350-19,400 levels as of Friday. Not a bad gain for a week’s work—especially, if you were anticipating it.
Now, that is really the key, isn’t it? We do analysis only to list out possibilities. Once we have those with us, then our work gets reduced to checking whether the market is following along the lines we have mapped for it. Not too difficult a job, unless we let our fertile imaginations come in the way.
For example, Monday started with a bit of a scare as the market gapped lower. But that was it. There was no further follow-through to the downside. If one was anticipating an advance, then such a nuanced signal could have been caught in time. See the arrow marked on Chart 1, mapping the 30-minute structure for the week.
Now, that is really the key, isn’t it? We do analysis only to list out possibilities. Once we have those with us, then our work gets reduced to checking whether the market is following along the lines we have mapped for it. Not too difficult a job, unless we let our fertile imaginations come in the way.
For example, Monday started with a bit of a scare as the market gapped lower. But that was it. There was no further follow-through to the downside. If one was anticipating an advance, then such a nuanced signal could have been caught in time. See the arrow marked on Chart 1, mapping the 30-minute structure for the week.
Then, it lived up to expectations by hitting 19,450 as a high. Here is what was mentioned in the last week's letter, “19,415 should be the first port of call on the pullback (around 50% of the decline),” and this, “I do believe, though, that the pace may be somewhat languid and hence 19,415 is to be considered the bet for now”. Not bad, as far as forecasts go. Prices dropped from those levels and were rather quiet even as they showed two upside gaps on Thursday and Friday. But nothing much seems to have come of it.
One has to remember that gaps generally occur in the direction of the main trend. The rally last week also started with an upside gap last Friday. The languid pace was also indicated by some pullbacks on Tuesday and Wednesday.
So, if one didn’t really have a forecast for the week and tried playing the market dynamically, it would have been quite tough to profit. Playing it by hunches and following intraday momentum works well when the market is moving one way. But when it is a bit choppy and a bit all over the place, the trading by the gut business takes a knock. So, do follow the forecast and if the market does what we expect of it, no need to exercise the brains much. But if it doesn’t, then dump the forecast and do what the market tells you. This is the golden rule.
Now, we have to take a view on what is next—will the rally continue or will it fizzle out here? Here is what I had written last week, “Spillovers could take it to 19,650/19,820 area as well… If prices rally quickly, then the targets mentioned shall be reached.”
Spillover above first targets needs momentum. That has not appeared yet, because the moves reached the first target with some effort and had it not been for the gaps, it may have been tough. But gaps are part and parcel of our market lives and when they are in our favour, we welcome those!
Obviously now, if the indices can work up some fresh momentum, then the effort to reach the higher targets shall be made. For that, we need some good news flow. Do we have any? Probably. The Fed held the rates and comments did not scare the market there. Crude stayed steady. Our October GST collections continued to show leaps. The RBI Governor chipped in with some positive sounding comments on expected growth. Q2 results remained mixed to good. So, overall not bad. Scope for momentum to come through if no bad news emerges suddenly. Will it do the trick? Let us look at the Heiken Ashi chart shown last week in updated view (Chart 2).
Some definite improvement on the daily chart, signaling the onset of a possible trend. But I have also patched in on the same chart, the weekly HA candles (see the inset box). Here, we find that the trends continue to remain bearish. So, last week's huffing and puffing has not done anything to change the larger picture. That means bulls have to continue their efforts without sagging in the effort. Bears are waiting around in the hope that they will. So, stops at the 19,000 levels need to be kept by active traders on their longs.
Here is one more chart to look at (Chart 3).
A few points to note on the chart. Prices are right at the top channel and with some efforts, this can be broken up. In the lower panel, note that the indicator has flashed a buy (small, up arrow). Looking for a tighter stop? Well, if the uptrend has to sustain, then the gaps left to the upside shouldn’t really get compromised. Below 19,145, that will start happening. So, one may attempt to keep a stop there too, if desired.
Looked at the sector index charts. The most striking aspect of last week's trading was the small range moves in almost all the sectors. The only exception to this was Realty, where some good traction was visible. The small range made for inside bar patterns and therefore, trend resolutions could occur in some sectors in the coming week.
Now, for some time checks. From my Neotrader software, I reproduce here the expectations for the month ahead for the Nifty. For the first week, we had an upside bias that has worked out. For next week, it seems more like a mixed week. So, one may want to be a bit on the back foot and use dips intraweek to buy in, rather than chase breakouts. Note that stocks may follow a different timetable than the index, but usually, the index sets the tone for the trend overall. The best, it seems, is reserved for the last week of the month.
The Bank Nifty, too, has a similar set-up, but has probably more neutral days (grey marking) and the ending week is not so robustly bullish. So, option shorts in the index may work out, perhaps. This is the view across the month and not for days, please note. I find a lot of people trading short options for the day, but those are not the people at whom this time-based analysis is targeted at.
Wrapping up, a small rally occurred. Some chances for it to continue, but for that, bulls have to show a greater resolve. Time counts are supportive but from a non-negative side. Hence, pullback trading for buys would be the way to go. Stock moves will be news dependent and, therefore, one may have to be a bit adroit in checking for news. A neutral week ahead, it seems like.
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.
The views expressed here are those of the author and do not necessarily represent the views of BQ Prime or its editorial team.
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