Nifty This Week In Technical Charts: Banks Will Still Dominate The Show

We were all set to eat and the table too seemed all laid out, as of last Friday. The banks were in play, great results came from the frontline names, PSU banks had rallied and the Bank Nifty was within hailing distance from the all-time high. There were shorts in the system and a gap-up was looming for the Monday open. Salivating, we came to the market to indulge in a nice repast. Only to be disappointed with absolutely flattish moves for the Bank Nifty and a very choppy one for the Nifty. The expected dinner didn’t even turn into a snack! .It might appear like this would have been an easy trade—buy the dips and sell the highs! But everyone did the opposite—mainly because of the SGX which played truant on all days with a high gap-up open that never showed any follow through. Quite a few would have got turned off the SGX forever in this week! The Bank Nifty fared no better, being placed in a range all through the truncated week. The monthly expiry for October passed off peacefully with no squeezes of calls and puts and the sellers of options went home happy. But disappointments with breakouts not happening cannot take away from the fact that the trends are still straining at the resistances, wanting to break them. Chart 2 shows the weekly Bank Nifty, with a nice drive up from support to a multi-test of resistance at the top. The candle for the week is a small, hesitant one. Now, that kind of hesitation is not what we want to see at the time of taking on resistances. But the fact that there was no price damage and component bank stocks were in good shape (owing to good results) would suggest that we don’t get fazed by the small body candle..In the chart, we can see two indicators added. The first is the RSI which is seen accompanying the prices and comfortably into a trend mode. The second is the linear regression slope and here we can note that the trend progress has been pretty decent and even the hesitation of the last few weeks has not dented the progress of the indicator. Both suggest that the index may continue to attempt an upside breakout as yet. It will therefore require some big event to overturn this structure. Thus, bulls can continue to remain sanguine about the prospects. The Nifty set-up is slightly different in that the prices still hover below 18,000 (which is like a sentiment tipping point) and progress has been slower, leading to less robust placements of the same two indicators as mentioned before. In last week's article, I had expected that the strength in the Bank Nifty would ensure a thrust that may then help the Nifty get into a better stride but that has not happened. Yet. We can continue to look for that to happen this week. First round of results have been decent but with one common theme running. The top line has been good but there is definitely pressure on the bottom line owing to cost escalations. Hence, the market is currently choosing to reward only those stocks where cost pressures have been overcome. There haven’t been any bloopers yet among the big names by way of numbers and that has managed to keep the sentiment going too. The focus shall continue to remain on the results in the coming week as well. But the U.S. matters are set to intervene early in the week as the Fed meet is expected to fire off yet another increase in rates. A minor scare occurred (perhaps the reason why the banks stalled) when the RBI announced an unscheduled meeting in the coming week. Ostensibly, the agenda is to update the government on measures to tackle inflation. But the market doesn’t like surprises and many times, makes provisions for them. Maybe, the banking pack wants to see off the first few days of November before launching its next move upward. As far as the sector indices were concerned, the PSU banks turned in another solid week of gains (up 7%) with auto stocks also faring better (up 3.6% for the auto index). While the leaders in the PSU bank pack have done well (Canara Bank gained 34% for the month so far), it has really been the down-and-out stocks from the space that have ratcheted up good gains. Stocks like Indian Bank (up 29% for the month), Bank of India (25% gain) and Union Bank (up 24% for the month) have brought in the money for retail investors. At the end of the week, the street seems strongly biased towards more gains in this sector. On the monthly chart (see chart 3), we can note that the prices have moved to the main resistance trendline, so, further gains will now need the leaders from the space to perform rather than the also-rans. .On the derivatives front, it seems to have been buying action from the FIIs that has driven some trends. They have now moved to net long in index futures (from index short at the turn of October) and cut their shorts also sharply. In the last week, they also cut a lot of their index option shorts. The overall rolled position into November series is lesser compared to the last month, with Nifty at about 1.09 crore (down from near 2 crore earlier) and Bank Nifty futures also down to 16 lakh from 21 lakh shares earlier. The market seems to have therefore witnessed some long shedding and short covering in the week gone by. The other participants also appear to have shed their longs and therefore, the market can be said to be lighter in terms of positions. So, if positions are lighter and PSU bank index has risen to a resistance level, then it is mandatory for the private banks to take over the reins if a move higher has to occur. Among these, ICICI Bank Ltd., Axis Bank Ltd and SBI are quite well-placed to give it a push. HDFC Bank Ltd. struggles in its trends yet, but is the biggest weight in the index and would need to move for the index to thrust higher. Only SBI results are left to be declared and are due on Nov. 5. No reason that it should not be as good as the rest. If this too chips in, along with the other three above, then we should see banks taking centre stage again. The Nifty seems a bit bereft of batting strength right now. Reliance Ltd., ITC Ltd., Bharti Airtel Ltd., Larsen and Toubro Ltd., Maruti Suzuki India Ltd., etc., will have to carry their bat for the innings to be successful. So, those are the stocks to watch next week if one entertains thoughts of higher levels during the week. The rest of the team seems a bit weighed down. Hence, the banks will have to come to the rescue of the Nifty yet again this week. It is interesting to note that these days FII gross buy figures have become quite large (Rs 5,000-10,000 crore) even as the net figures remain average. Two things are happening here then—one is the larger-than-average buying and the second is that this is allowing the DIIs to sell their goods. So, some nice churn with stocks going into strong hands. If this continues at a similar pace, it will bode well for effecting that upside thrust. On the Nifty, we can keep 17,550 as a lower end of support area. Ability to trade and sustain above 17,850 will decide its upward thrust. Nearest level to deal with would be 18,050 and 18,125 being most recent intermediate resistances. For Bank Nifty, 40,600 should prove a good support and a thrust beyond 41,450 will probably clinch it for the bulls. The view continues to be upward-biased and hence, look to be buyers on intraweek dips. .CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise, and NeoTrader; and chief investment officer of Plus Delta Portfolios.The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.

Nifty This Week In Technical Charts: Banks Will Still Dominate The Show

For Bank Nifty, 40,600 should prove a good support and a thrust beyond 41,450 will probably clinch it for the bulls.

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