Nifty In Technical Charts: Khoda Pahad...

Save the no-tax-till-12 lakh stuff, markets had nothing much to talk about. But over the weekend, people may scour the final document and possibly come up with some positives and negative that they can use to base their decisions on. Now, that will be known when markets play out next week.  But as far as creating a draught of tailwind, this budget really didn’t have very much. So, it shall be back to the earlier weeks, minus the uncertainty of the budget.

However, this can actually be converted into a positive, as there was some fear up to Friday last that there could be something negative and now that the worry on that is gone, the market can, if it chooses to, try to focus on some positives in the budget, get back to earnings flow and gauge impact of external variables such as the Dollar and Oil etc.

But at least the Budget threw up one conclusion- the near-term low is made now at the Jan. 27 low of 22,809. Unless there is some big event in the days ahead, this high-sentiment low ought to hold, making future dips to near this zone a buy-dips situation. This is a sudden shift from the situation that the market was in a week earlier! In last week letter I had written, “The caveat we carry at all times is that if the lows of last week are broken then declines will be renewed.” Well, that danger may have receded considerably now.

Save the no-tax-till-12 lakh stuff, markets had nothing much to talk about. But over the weekend, people may scour the final document and possibly come up with some positives and negative that they can use to base their decisions on. Now, that will be known when markets play out next week.  But as far as creating a draught of tailwind, this budget really didn’t have very much. So, it shall be back to the earlier weeks, minus the uncertainty of the budget.

However, this can actually be converted into a positive, as there was some fear up to Friday last that there could be something negative and now that the worry on that is gone, the market can, if it chooses to, try to focus on some positives in the budget, get back to earnings flow and gauge impact of external variables such as the Dollar and Oil etc.

But at least the Budget threw up one conclusion- the near-term low is made now at the Jan. 27 low of 22,809. Unless there is some big event in the days ahead, this high-sentiment low ought to hold, making future dips to near this zone a buy-dips situation. This is a sudden shift from the situation that the market was in a week earlier! In last week letter I had written, “The caveat we carry at all times is that if the lows of last week are broken then declines will be renewed.” Well, that danger may have receded considerably now.

The other main point I had made was about the strong likelihood of a rally, using the Time goal date and the FII position covering, the Dollar, the Oil prices etc. etc. It was certainly heartening to see the market pick up from Monday last as the price and time nexus occurred and the RBI came in with a liquidity flush into the market. This helped to create the lows. But I had also written that 23,500/49,500 needed to be recaptured for more gains. Have we? Answer is yes and no. We did move beyond those levels but have been unable to hold the ground higher. Now we are back to skirting those levels and therefore, the jury is still out on the continuation of the rally. So, we will have to see what evidences the market analysts come up with to position themselves in the days ahead. But let’s look at the evidences that presented. See Chart 1 of Nifty Fut detailing some of them. I have marked items from points 1 through 6. Pls locate them on the chart so that you can follow the commentary on the evidence.

Point 1 is the last week CPR which I had stated that it had to be cleared. It was done with not much difficulty and rally continued higher, going all the way till 23715 (a nice 885 points from the low of Jan 27). On Friday the prices have finished well above the next week Cpr levels (point 2) and finish is a strong signal from the Cpr system, indicating possibilities of further gains. The levels for next week are 23460-260, meaning any pullback towards 23260 area should meet with demand again. In the process of moving higher it can be noted that the prices jumped over the intermediate resistance trendline coming from past pivots (point 3). Here, you can note that the prices finished the week very close (point 4) to the next month Cpr level (pt 5) and finally, we can note that the Fib retracement levels of the last leg down move lies at 23569-23742 (point 6).

So, a whole lot of information in there saying, a) Prices rallied as expected, b) Rally was strong enough to clear resistance trendline,  go all the way to next month Cpr levels but finished near the weekly Cpr area, denoting probability of continuation. c) The Feb series CPR is a narrow one and so resistance can be crossed easily and if that happens then the 61,8% of the last fall will also get crossed, which would signal added strength to the rally.

Hence, what we have is a market signalling the possibility of the continuation of the rally than a fizzling out.

Since the budget has not spoilt the atmosphere any (in fact, many big wigs are even calling it a good one), I feel there may be many who will continue to be willing buyers in the next week. Therefore, the suggestion would be to go long with a stop below 23200, the immediate dip buy area.

One of the points I had covered in the last week letter was the chart of the Dollar Index (DXY) that was threatening a decline and how that may impact us positively. But over the week, it managed to recover owing to Trump tariff announcements as well the fact that the Euro dropped a bit on weak numbers out of Germany. Hawkish comments from a couple of Fed governors also contributed to a bullish view on the Dollar. Chart 2 shows the situation on the DXY.

Here we can note that the dip of last week took support at the lower channel of the CPR and has rallied. Prices are about to negotiate the monthly Cpr of February and it is noted that the Cpr has a narrow width. Hence, we should be looking for some trendiness to appear. Resistance is seen at 108.50 levels and we should check whether this gets exceeded. If it does, then weakness of the INR will start manifesting again and that might trip up the rally. However, if we see the resistance do its job, the DXY has an equal chance to slip again and if it breaks 106.50 levels, then the picture can differ quite a bit. Hence, the Dxy and its contributory factors should be tracked for cues. This is one major factor (weakness of INR) that can influence the rallies ahead.

Now, let’s move back to the Nifty and what can be the rally extent. Chart 3 is Nifty future with retracement moves for the full decline from Sep 24.

Prices have pulled up to the 23.6% pullback level. Above this lies the 24200 mark, for 38.2% retracement. We can note on the chart there are multiple swing pivots around this area and hence it can be the next immediate target for the current rally swing.  Beyond that, the NF can hit the 24500-25000 range too.

Having seen off the decline and confining the fall to 22800 (where it had potential to fall to 22200 levels too), now we are looking at a rise to 24200 and then beyond too. We will have to take it sequentially, awaiting strengthening signals from the market as it moves higher.

As ever, I would now want to calculate the next possible turn dates for February that can aid us in judging the next nexus of price and time. I get 11^th and 19^th Feb as the next possible dates.

So, there you have it for the rest of the month, of sorts. I shall track it for you thru the weeks ahead to see the kind of course that the market takes. As things are now, I expect the market to continue on the upward path, punctuated by some pullbacks, consolidations and breakouts, as it usually does. Stock names will get thrown up by flow of results and other news. The Budget, for e.g., has indicated a return of interest to Consumption theme with perhaps Auto thrown in.

Stay bullish.  Don’t over-expect the moves. Buy intra week dips.

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.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.