Nifty In Technical Charts: A Time To Buy

We had boarded the train and were slowly sliding out of the platform, waiting for the all-clear signal. That came in the last week and how! Charging upward, the Nifty covered nearly a 1,000 points in a matter of four sessions! Now, that’s the kind of stuff that we all like. A correct view, a correct action and strong delivery from the market! Chart 1 shows the action over the week in greater detail..Barring the hesitation on Monday, the market was in a running mood all through the week. The gap open on Monday never looked back and carried on till the end of the week. Hoisting itself above the 23,300 enabled the Nifty Futures to change its downswing and that now establishes the low at 22,100 as a strong one, meaning, it may get tested but not break. This may disappoint a lot of people who were waiting for lower levels so as to jump in.The week was the best one since many months and went a long way to repair the badly broken sentiments. Still there are many who will shy away from participation because of the hit they have taken in the decline. What such people need to understand is that the market is going to do its thing no matter how you feel. It is up to you to crawl out of your own hole and look around at what is happening. Market bottoms don’t happen with bugles blowing and drums beating. They just happen and the market turns around.A look at history about March bottoms can be illuminative. In Chart 2, I have taken data over the past five years to show that March bottoms around the 20th or so tend to create significant low from where large movements occur. This can be seen in the chart. We are currently also trading at a low in March and rallying off the lows. Hence, can we expect a repeat of the moves from the past? No reason not to, except for your own skepticism!.One can argue that a big move has already occurred (22,100 to 23,300) but for that I would say, get some perspective - what is a 1,000 point jump in the context of an index at 23,000? Hardly anything. Look at history — intermediate moves of several thousand points have emerged from such bottoms. So, the simplest thing to do is to switch out of any bearish sentiment that may still be resident in your minds and use intra month declines as buying points.Can this historical evidence go bust? Of course it can. But here again, I will state that let the market show us that it is going bust and then act rather than fear that it may happen and not participate! If you decide to buy during pullbacks, say now to 22,400-500 area (where the last minor consolidation zone was), then your stop could be around 500 points (below 22,000). For a multi week run possibility, that is not a bad bet!A good development alongside the price rise has been the FII action. They seem to have eased on the selling in cash a bit — two days in this week compared to just 3 days in the last 3 months! Also, they are active in the derivative markets, covering shorts and creating longs (both!). Chart 3 shows that shorts are almost halved from the recent 2L contracts short to 1.1L as of Thursday. They have also increased their net long positions from around 12-13% (lowest in many years) to around 29%..This is encouraging. There are other evidences too that the FIIs may have started buying in largecaps. Of course this is more of guess than data based. Studying the data of largecaps (represented by Cnx100) vs. the entire market (represented by the Cn500), the ratio chart (see Chart 4) presents interesting finding. It reveals that the mid and small-cap stocks were being bought up big time since 2013! This was mainly the HNI set who entered the market big time back then. It ended with the topping out of that frenzy in 2018 after which the largecaps made a comeback. But post 2020 low, it was the same game again. In all our obsession with indices and largecaps we often overlook what is really happening beneath the market!.Stock Market Highlights: Nifty's Best Week In Four Years As Investors Shrug Off Negative Global Sentiments.From the current bottom, that seems to be getting reversed - we have the plot rising once again, denoting that largecaps are being bought once again. Typically, buyers of largecaps are the Institutional set and hence, making a leap of faith, I am stating that some of that buying could be from the FIIs too.Now, if I combine both of these evidences, from derivatives and equities, we may be about to see the best trigger emerge soon - the return of the FIIs.Despite the fact that SIP closures are happening and DMAT account closures too, there isn’t too much of a difference in the flows in MF coffers, as that continues (although a bit diminished). With the right set of triggers, it will ratchet up very quickly.So, the two signals that we are spotting here have a lot of importance on how the trends may unfold in the coming weeks.Through the months, the exchanges have been busy releasing newer and newer indices. This is good in a way because it helps to see if there is some focused area of action. In the last week, barring IT and Bse Teck index, each and every index that is around (yes, I checked the chart of each of them!) is showing a good uptick. What this says is that the recovery of last week is on a very broad based breadth and that cannot be just said to be from short covering of some names. It seems like the institutions, with all their thematic funds and multiple schemes in growth and liquid and value and what-have-you categorisation have got into a shopping mode!This encourages me to think that we may have made a decisive low here and it is only continued skepticism that is holding back active traders and investors. As ever, they will wait for more confirmations or get spooked on any declines that may occur and finally, miss the bus.Does that sound like I am giving an all-out call to go there and buy the market? Not really. But for those with limited capital, they don’t want to miss a chance at a dropped level of price. Hence they should not wait. For those with larger capital, they can parcel it out with some entry now and wait for confirmation for buying more. Right now, the situation is a shift from a 5-month damaging decline that has decimated portfolios and destroyed sentiments. So people are scared and that makes for tentative action which translates into tentative signals on the charts. Hence, we will not get those resounding bullish patterns that many of us may have been used to as recent as six months ago. Technical signals have to be placed in the context of the regime in which they are emerging rather than be viewed in isolation, for, the latter can never give you the right answer.Finally, the market is coming through on my expectations. The last two lows (Jan 27th and Mar 4th) were caught right on and sizable rallies have ensued from both - 1,000 points on the first and 1,200 and counting on the second. The Mar low also seems to have history backing it up as well as a host of other technical and sentiment factors too. Hence, the conviction to buy is there. That doesn’t mean that one goes and plonks all the money into the market in one go. After all, these are only forecasts. Remembering the best quote of Robert Miner, ’Trade the market, not the forecast’, one should scale it in, especially if your size of investments is going to be meaningful.The next big turn date is around April 22nd. From now till then the bias should be bullish, making dips a 'buy'..Market May Make New Highs Within This Year, Says Emkay Global's Nirav Sheth

Nifty In Technical Charts: A Time To Buy

Barring the hesitation on Monday, the market was in a running mood all through the week.

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