Nifty In Technical Charts: Still A Buy-The-Dip Market

Two uncertain candle patterns, back to back, at the top of the current advance? Not a happy event to see on a chart. At the same time, perhaps, not an unhappy one either. Depending on your perspective you can see it either way. The ones that are bearish will say, look, no strength in the rise but the ones who are bullish will say, look no teeth in the selling! And you know what, both will be right. Here is the chart of what went on.

That’s the stuff of the market- keep everyone guessing about its real intent! It is only in full-fledged bull or bear markets that the market will flash clear cut signals. Rest of the time it leaves us guessing.

Now, we find a new consolidation happening — above the 25,800 highs. Notice in the chart above that this phase seems to have decent momentum signals yet, both from the RSI and the DMI. This means that the bulls, who had grabbed the baton a while ago, are refusing to let go.

So, are we into a small consolidation with an upward bias? Seems like. You may be wondering why I am asking questions instead of supplying the answers! The fact is, I don’t know either! I am groping my way around as much as the next guy — except that I am doing it with the help of market generated data (i.e. charts) while others are relying on their gut or emotions.

And, at the end of the last week, the market is telling me to be a continued buy-the-dip guy. Two weeks ago, we moved to this approach. We still remain in that mode. Does that mean we cannot slip lower? Obviously not.

But it seems quite likely now that the 25,350-600 band will hold any attempt to push index lower. Remember what an effort it was to get past 25,000 not very long ago? Well, now you are sweating to get past 26,000. But hey, you are a 1,000-points better off, right? Think of that.

The ATR indicator is always a good way to look at the larger picture as is the Bollinger Band. In Chart 2, you can see the monthly picture of Nifty with the two indicators. The ATR value is at 1,350 and we saw more or less that much move for the month. If one looks at the Quarterly ATR too, we find that the index has moved quite in line with the ATR levels.

The point I am making is that, despite everything that is happening around us, the market seems to be moving “normally”. If you look at chart 2 Bollinger Band you find that they have started flattening — a possible indication of some consolidation ahead.

But the monthly candle is a good one and if we find that the next week is positive, then we may have a game on our hands for the bulls. Note also that the upper Bollinger band has not been challenged since July 2024 and the lower one never reached at all! That tells you that, even as the trend has been sedate it has been resolutely up, with the mid band acting as a good support.

This information of market volatility using the monthly charts once again confirms that the overall trend is up and it is just our periodic bouts of emotions and fears that make us doubt the trend direction. The message continues to remain the same at end of Oct 25- remain buyers on dips.

With that established, let’s use the same set up to look at the Weekly picture for guidance in the coming week. Chart 3 shows this

First up, the weekly ATR is 537 points. That sets a background of what to expect under normal circumstances. Bollinger bands are relatively narrower compared to their recent wideness. Last two weeks saw the upper band being pierced. So, there is some attempt at going higher. But both ended as Dojis- so prices could move either way.

I think if the move is upward, then market could move up the entire ATR value (and maybe even more) as it will be signal of a successful break of the Bollinger. However, if prices move lower then it will be a failed attempt to create a breakout and then we can see prices retrace to the mid band (minimum) which is at 25138.

Now, this would mean a move of a larger dimension than the weekly ATR and therefore this will require some news inputs to carry till there. Barring news flow- either local or overseas- market may just churn within the ATR-indicated 500-550 points.

So, delicately poised for now. But when the market is ever not delicately poised, you may well ask!! When markets have been idling for an extended period of time, a good dose of increased volatility is what is needed to shake it out of its somnolence! That is the reason for using more of volatility indicators in this issue.

One of the best supportive elements for continuing higher is the flow of Q2 results. In October, of the results for the better companies declared, 323 had positive profit growth compared to 205 with negative profit growth.

Numbers have been positive for total revenue growth, Ebidt growth as well as total operating profit growth. This is data from a popular website. I take this as being quite a satisfactory progress of the Q2 numbers so far. Leaders have, largely, fared well too.

Hence, we can take it that the technical picture is reflecting the changed fundamental picture? After all, expectations were pretty low this time that the results would be good. If the flow gets better, I think there may be a bit positive response from the markets.

What was not happy event was that the FIIs pressed sales afresh late in the week. See chart 3. After consistent short covering for a few weeks, which brought the positions from 1.96L contracts short in Sept to 92K in October, we were back at building short again the last couple of sessions.

Remember that we are at the top of the recent advance and hence this action needs to be paid heed to. Last week I mentioned about Pro players also turning short. Well, they remained short during this week too. Some smoke here. Be on the lookout for possible fires.

The immediate outlook, as defined by the Options build up appears to be slightly bearish though, as the PCR is down to 0.72 and call shorts are lined up higher. But the monthly PCR is at 1.48 and that is a bullish bias. Interestingly, majority of the positions are at 26000 strike (2.34cr Puts vs 1.6cr Calls). Large Put OI build at 25500 should act as a strong support pivot ahead in case of any fall. So, given the monthly options build I would still like to be a buyer on declines, perhaps near 25500 if reached.

Times are such that we cannot go without making a comment of gold and silver. After the parabolic advances we saw in both the metals, there was a sharp correction in both that has pulled back prices nicely- about 11% in gold and 15% in silver.

Good enough to take some fluff out of the market for now. I think some consolidation may be ahead, perhaps between 3800-4200 for gold and 46-52 for silver. Possibility some of that profits from bullion could shift to Base metals? The charts of Aluminum, Zinc etc. are looking decently poised for a rise. Proxy stock play here is Hindalco whose chart is very positive.

That’s it for now, and summing up I would restate what I have said about three times in this article already- be buyers during dips. Some ideas of where to is also given with reasons thereto. In a market that is being whipped around in a smallish range by news flow this would be difficult. But stocks are behaving in a more consistent manner of late and it has been an easier hunting ground there for larger returns.

The results season is still running along and doing so okay so far. That ought to keep the sentiment ticking with the stocks, making intelligent plays available. For those who still play by their gut or rely on random sources, I would strongly recommend using a software like my Neotrader, where you can get consistent methods based trade recommendation for any type of trader. Give it a whirl, if you can. You won’t be disappointed.