So, finally, the tariff saga comes to an end. Not so favorably, perhaps, but to some kind of an end, nevertheless. There is of course the niggling bit of additional penalties that lies unspecified at the moment. Since no one has a clue, there is no way to factor it into any kind of valuation. The hopefuls are still out there, saying this is just a first salvo, the penalty thingy is just a threat or a negotiation with the real target being Russia etc. etc. But as ever, we should deal with what is on the plate, not what can be in the pot.
So, finally, the tariff saga comes to an end. Not so favorably, perhaps, but to some kind of an end, nevertheless. There is of course the niggling bit of additional penalties that lies unspecified at the moment. Since no one has a clue, there is no way to factor it into any kind of valuation. The hopefuls are still out there, saying this is just a first salvo, the penalty thingy is just a threat or a negotiation with the real target being Russia etc. etc. But as ever, we should deal with what is on the plate, not what can be in the pot.
There we still have some issues though. Currently, the market, as also explained over the last couple of weeks of letters, is passing through two trends. The short term, now stretching into the fifth week, seemed like it might end when the tariff thingy came to an end. If it had, the longer term (intermediate up, since April 7 low) would have had a chance to reassert. But the attempt on Thursday was feeble and ran out quickly and Friday saw some declines to test the support zones yet again. But we remain within the bounds of an earlier congestion zone support. See Chart 1.
Chart 1
Chart 1
That earlier zone of consolidation was set up after a strong up thrust way back on May 12 saw the Nifty pass through a very boring (not to speak of frustrating) sideways price action until around June 20, when the ceasefire news finally galvanized the market into fresh upside action, carrying it to the high by June 30. The decline has since brought the prices back to levels of the start of the consolidation. It is interesting to see some coincidences in this movement. The consolidation took 24 bars, as has the decline from the high. The in-between rise was about half of that! Collectively, it is 59 bars and in a Gann count we also use 60 day counts (geometric) and that would be on Monday. It is also 81 calendar days into Friday and that is a square of 9 number, another Gann element. Tuesday, Aug. 5, is another geometric date count.
So, it seems like we are having some time counts coming up in the next week and bunching up near the support zone in price at 24,500. That is nice and it gives us something to look forward to in the week ahead to spot some kind of reversal.
Some good news can produce a reversal. Or, there can be short covering that can produce some rise. Chart 2 shows that the FII index short position continues to be large at the start of the August series. That needs to start receding if there has to be a revival.
Chart 2
Chart 2
The options chain also reveals that there is larger call writing till the 25,000 strike compared to much lesser Put writing, revealing a bearish mindset. Chances are, if there is any event or news flow that can force these shorts to cover, then we can see an upmove. Hence, that needs to be watched- whatever can induce short covering.
The Bull and Bear scores from the Ichimoku indicator of Neotrader also reveals a bearish overhang. This has not permeated into all time frames, so trend following signals are damaged. See Chart 3.
Chart 3
Chart 3
The other indices too are in similar situation, so the job of reversing from support is going to be tough. Hence, it would be more prudent to expect some consolidation to occur rather than reversals from the upcoming price and time nexus. Still, let’s keep our hopes up. But, in case, the support gives way, Chart 4 shows other possibilities.
It shows that prices are also at a Gann angle confluence (from top and bottom) and the Fib retracement of 38.2% is just a couple of hundred points away. So declines, even if they do occur, may not really be damaging.
Overall results so far have been about average-meaning nothing that lit up the Street but nothing that damaged it either. Maybe IT disappointed, so that may be a sticky pocket for a while and act as a drag on the Nifty. Out performance of banks and financials is at a bit of a halt too. So, other sectors need to step in now and swing for the fences. Do we have any candidates? Well, FMCG could be one, what with good results from Hind Unilever and ITC and a few other stocks playing supporting actors. Financials’ bearish trends are a bit long in the tooth and we can look for some revival there perhaps.
On momentum signals, the picture is along expected lines – still bullish tracking the longer term but bearish on the shorter term. Chart 5 shows that the signals on weekly charts are still bullish. These are proprietary Neotrader indicators. It is to be mentioned here that both these indicators are in sell mode in the shorter-term charts.
Chart 5
Chart 5
Summing up, there is still a surfeit of negative signals that have to be overcome for the market to get back into the rising mode. But having reached some support zones and time counts and considering that we have been down for almost five weeks now, there could be some consolidation that may emerge from here. This is, ideally, actioned through short strangles but the reversal in the VIX stops us from being aggressive on those. Rather, pick the selective stocks where the market is taking a clear view – either up or down- and play those. Index trading is a bit tricky now.
Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
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