This weekend I doubt if anyone is complaining – about how the week has gone by so quickly! Usually, when you are having a good time, you don’t really notice the passage of time! That could be said of the market after a long time- the market went up all five sessions and ended well too. Considering that the low was made last week on 28th August, the recovery lasting till now has certainly cheered the sentiment a bit. Writing about the sentiment last week, I had said,” A bit all over the place. So, let's see it through the lens of time frames. The short term is one of confusion and a deep sense of dismay, with most people wondering what more this market needs to go up?” The steady markets helped to push the sentiment indicator to Neutral (from Worried) during the week. This is like one of those Debt market ratings- where you go from BBB- to BBB, Both are poor but the latter is one notch higher, so that’s good!
This weekend I doubt if anyone is complaining – about how the week has gone by so quickly! Usually, when you are having a good time, you don’t really notice the passage of time! That could be said of the market after a long time- the market went up all five sessions and ended well too. Considering that the low was made last week on 28th August, the recovery lasting till now has certainly cheered the sentiment a bit. Writing about the sentiment last week, I had said,” A bit all over the place. So, let's see it through the lens of time frames. The short term is one of confusion and a deep sense of dismay, with most people wondering what more this market needs to go up?” The steady markets helped to push the sentiment indicator to Neutral (from Worried) during the week. This is like one of those Debt market ratings- where you go from BBB- to BBB, Both are poor but the latter is one notch higher, so that’s good!
Made for a decent picture for the daily charts more than the weekly chart. See chart 1.
The trend here is on the mend- but that’s about it. So, we will have to state that, as yet, this is just an upswing within the large range that we have been witnessing. For sure, we have now come to trade near the higher end of the range that was described in the last letter (25300-24500), leaving us with the same question- will we cross the upper end of the range? The situation does seem more conducive to crossing the upper end for now.
The Ichimoku indicator needs more positive feed than what it got through the five-day rise during the week. We have just made it to the level of the cloud (small effort needed to cross), the TS-KS line remains negatively phased as of Friday but very close to a crossover, the future cloud is still red so breakouts are awaited and finally, the Chikou span line remains caught within the prices.
The Breadth reading showed some improvement, with all main indices in the green for the week. That the gains were meagre (Nifty 1.48%, Bank Nifty 1.24% and Midcap 2%) also holds out for the last week’s action being labelled as an Upswing only rather than any change in even direction, let alone the trend.
There was very slight improvement in Momentum readings, as can be seen here in Table 1 from Neotrader. This shows the readings of the Multi day readings and the numbers are still quite minimal. The ADX reading has dropped a tad from the last week, suggesting lack of trend strength in the Upswing yet with the DI lines still just beyond (PDI at 28) which is hinting at some upside action perhaps. MACD has worked its way up a bit, into the positive, so that ought to be a bit of relief, as it suggests that prices have moved to being above near-term averages. Bollinger Bands are still broad apart so no signal there. RSI shows a small improvement to hit 60 levels- and needs some push to get over it. Stochastic indicator is the only one to move up some and that is in line with the five day move. Finally, the ATR reading has dropped some from the last week, and importantly, this shows that none of the five sessions of rise had any wide ranges- something that suggests some bigger buying force.
So, all the parameters to look at the markets – sentiment, trends, bias, momentum etc- are still awaiting a show of strength. Do we have a pattern? Maybe. See chart 2
We have the Aug 28 dip taking support at the Gann angle drawn from the April bottom and now the move is about to challenge a down pitchfork channel (Schiff). Continuation beyond last week would succeed in breaking the channel outward (will happen if prices continue above last week highs) and that would establish the first of the positive pattern action within this upmove from Aug low. It would then enable me to draw a rising pitchfork channel using new price pivots. Let’s watch for that in the week ahead.
The Bank Nifty was up for about three sessions last week and therefore continues to underperform the Nifty. There is still much to do here before it can start contributing to the upside action of the Nifty. Until then, consider that its positioning will continue to act as a drag on the Nifty’s attempt to move higher. Within this space, the Psu banks appear to be more in favor compared to the pvt banks.
A couple of areas hold out promise- Metals, Auto and Manufacturing. Chart 3 shows all the three indices movements in the last week. It is easy to note that their moves were quite well aligned, if not better than, the Nifty. Ichimoku setups in these three sector indices are all quite positive and therefore they may continue to do well in the coming week and possibly support the Nifty’s attempt to seek higher ground.
The other two areas where the market would just love to see some action return would be IT and Pharma. See Chart 4.
Both these are seen making an effort but are still held under resistances yet. Several pharma counters had US FDA inspections while for IT, there was this possibility of some sort of strictures emerging on outsourcing in the US. We need to keep a track on how those elements pan out across the next week or two. Both indices are not far from a breakout area. But do need to make that effort.
Events for us to watch ahead would be the Fed rate cut (already baked in, one could say) and of course, more favourable noises on our trade deal with the US. There were a few titbits that emerged towards the end of the last week but we need more and it needs to be something more concrete than some Twitter posts. In the meanwhile, India is being no slouch and the government seems to be moving aggressively to ensure minimal impact of the tariffs. A lot of moving parts in this matter yet and it is quite uncertain how they may all end up.
But the main point till now is that the bears have not been able to take charge any time after April. We have managed to survive a near-war, average quarterly numbers, earnings downgrades, uncertainties induced by the tariffs, etc. etc. and the index has been making higher bottoms all through. More recently, it seems to be holding the 24000-24500 belt. Now, if it can move out of the confines of 25300 resistance, then we could perhaps start expecting again. Not going down in the face of negative news shows resilience, an ability to hold on. But uptrends or resumptions of the same need fresh buying. If Trump now beats a retreat, we may see Institutions and HNI turn aggressive on the market. I guess that is what we shall have to wait for. A small hint from the FII side towards the end of the week- some buying in cash and some covering of index shorts. Very tentative yet- but we will take whatever is offered!
With this newly launched upswing, if 24850 is not surrendered across the week, then we are looking for a switch in the situation. Assuming that shall happen, I would suggest creating long positions with a stop below 24850-800 area and look for a crossing of 25300. The next target could be 25600 if bullishness emerges.
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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