Nifty In Technical Charts: Play Defence This Week

Even though target zones were hit, the last three sessions were not exactly inspiring ones. So, we play a bit defensively when the new week opens. Next week CPR is a narrow one and, therefore, staying below 24140 would be a warning of lower intent.

Chart 1 shows the Nifty futures chart. I have switched it to Heiken Ashi candles to get a better read of the trend and there is a hesitation candle on Friday. The Gann angle is just at the 24,140 levels again. The weekly CPR (now based on HA candles) show that 23,870 would have to be pierced for trends to get some lower traction.

Taking the cues of bullish positioning of the banks and a few others, the NSE Nifty 50 did run up rather nicely, getting up to 24,500 target zone, with the acceleration coming in after the turn date of April 21. Now, as we near the next turn date of April (on 28), the index shows some hesitancy as quick profit taking has come in. Since a perfect Gann resistance level (24,510) was met last week—I had mentioned only the Fibonacci retracements for targets—one should wait for that to be crossed for indications of further bullish intent.

Even though target zones were hit, the last three sessions were not exactly inspiring ones. So, we play a bit defensively when the new week opens. Next week CPR is a narrow one and, therefore, staying below 24140 would be a warning of lower intent.

Chart 1 shows the Nifty futures chart. I have switched it to Heiken Ashi candles to get a better read of the trend and there is a hesitation candle on Friday. The Gann angle is just at the 24,140 levels again. The weekly CPR (now based on HA candles) show that 23,870 would have to be pierced for trends to get some lower traction.

In the last week letter, I had written about the targets that the Bank Nifty could achieve and happy to note that it almost went to 56,000 (second target). The date was mentioned as April 28 and this is for Monday. Maybe it will do another round or maybe it will not. The bigger point is, we got a 1,500-2,000 point move from last week and did we trade to put that in the pocket. Ultimately, targets are just indicators of potential. They do not, in themselves, take on any additional life because so many more things keep happening along the way. The focus of my analysis in these columns is to grab some large gains in the indices. If I keep doing that then my desire to make some decent money from the market gets achieved. 

I had also mentioned that we may get some consolidations. Luckily, the target zones were hit before the Bank Nifty slipped into a reaction. So, it was very convenient. For the record, the weekly candle of the BNF is a shooting star - implying profit taking at higher levels. This tells us that if the prices trade below the small body weekly candle in the coming week (below 54,640), then we may the pullback continue some more. The active 2x1 Gann angle is also present around there, adding to the importance of the break. Alternately, a continuation above 54,750 would start negating the impact of the candle but we need to see prices regain above 55,150 area in general to enable continuation higher.

Chart 2 shows the cluster of resistances that have now emerged and it is this zone that has to be crossed. Don’t forget the turn date aspect. That will click in too. So look for a confluence of price and time if you want some big moves.

So, what is emerging from both the indices is that the turn date of early next is going to be an important one, a kind of make-or-break type, for the immediate trends ahead. Hence readers are warned to be on the alert early next week to check for new trends so that they can position themselves correctly.

Derivative trends show that Bank both indices have seen surrender of long positions near the highs. Data shows that FIIs have rolled over a lot less of their shorts into May. But they are still net short on Index futures. Also, in the Component stocks, the rise has been used to build some shorts at higher levels once again. In fact, at the end of the week there were just six Nifty stocks that showed fresh long OI being built. That doesn’t speak too well continuation of the rally in either index. Mostly IT names saw short covering occur along with a few others like IndusInd Bank Ltd. and Hindustan Unilever Ltd. Most others were either long unwound or new short added. This puts the bias slightly to the downside for the coming week.

Reliance Industries Ltd.'s results on Friday were decent and we need to see if this can create some upward traction as the stock seems poised for it on the charts. It packs the power to overturn the bearishness that may creep in once again. Likewise, with ICICI Banks from banks. And a few others. The leaders, they hold the key. Like I said earlier, it is a bit of make-or-break and at those times, it is the leaders that have to step up.

Of course, news flow will help. On that front, Trump seems to be making some conciliatory noises. Maybe the market expected that he would ultimately have to bend and ran up in advance. Market will move first. News shall follow later. That is the adage of technical analysis. And, that is why knowing TA is so valuable.

We can let it go without looking at the source of all the current volatility - the US markets. And within that the two main ones are the 10-year bond yields and the dollar. Chart 3 carries both of these.

The treasury bills fell sharply earlier on the back of the carry trade being unwound and that sent the yields into a sharp rally, retracing about 78.6% of the earlier five wave fall. So, we can probably tag that rally as being a wave B of this entire leg. Now, a wave C decline should occur. Treasury bonds cracking is Trump’s nightmare and Achille's heel too perhaps. Both Japan and China – the largest foreign owners of US Treasury bills – can use this to keep Trump in line into the future. It will be interesting to see how this card is played, if at all. A decline in yields is what Trump needs and the world too will be relieved with that as a situation. It seems that it is expected to happen.

Now if that happens with a concomitant drop in the dollar, then it will certainly pave the way for some flight of capital out of the US and into emerging markets. The dollar index chart is a bit turbulent here with a bullish engulfing pattern that needs to be negated in the days ahead. That is something for us to track. Trading consistently below 100 on the Dxy would be a signal that the next target in the region of 97-95 may be aimed for. That can make for some positive trends for emerging markets of which perhaps India may be one. Note, however, that these are all events that happen across some time and hence it is not to be expected to occur in the next week.

Finally, the terror attack in Pahalgam and the resultant India-Pakistan tensions. It is a point of concern. How large? We don’t know yet. War is a tricky thing as far as markets are concerned. We need to see how markets evolve around whatever happens ahead.

So, markets are fumbling a bit after hitting some resistance zones. Price action for reversals are awaited. A few events are present for triggers but it depends on which ones the market pays attention to. People are (or should be) in profits after the brisk rally and wouldn’t be averse to letting go of position (either recent ones or old ones). This can create pressure. Lots of gaps below to act as support zones, so declines may be slow and perhaps orderly and nothing to be feared. At least until new evidence shows up, they can be treated as fresh buying opportunities. Only some fresh salvos (unexpected ones) from Trump can upend this.

If down moves emerge from next week, then those can run till around May 5-6 or even till mid-May. The level of 23,800 can be the first target and being a former strong resistance, should, ideally, work as a good support. Note that even a further drop won’t change the trend situation for a while. So invest accordingly. Those that have stuck trading long positions from the past should consider booking out some loss too as fresh drops in those values will get your nervous once again, making you listening to the wrong people or wrong news. And obviously, those with profits from recently created trading positions should consider booking out. So, play defence is the main message of this week.