Nifty In Technical Charts: Prepare For The Budget, First Quarter Results

We had another week of range-bound action. Curtailed by a day, the week saw the Nifty remain within the range of earlier days, shooting a bit up or down but not really making any headway either side. Barring the three-day power drive post the June 4 debacle, the market has actually, kind of, gone to sleep. Ranging markets were warned for the balance of the month and that is what we are getting.Now we are coming to the end of the month and question is: will the ranging continue? Answer is a bit hedged. It can, because there is no change in the environment. Chart 1 is Nifty futures daily. A few noteworthy points emerge from it..The super bullish candle (of June 3) is still being challenged. The three days of strong run (June 5–7) are probably the result of the terrific oversold state reached on the June 4. Hence, it can be taken as a knee-jerk reaction. Post June 7, the Nifty is showing very small ranges, revealing that the decisiveness people showed near the lows and thereafter seems to have suddenly vanished. Arguably, the lack of downside price action would point to lack of selling and that can also be interpreted as being bullish. But why the sudden cold feet? Did prices all rally swiftly in three sessions to levels where they were no longer attractive?The extra bullish among us would want to label the moves of the last ten sessions or so as some sort of upside bullish consolidation, implying very large move ahead. Since we are trading at all time highs and seeing this pattern, that possibility does exist. The key element there is the lack of any selling in any sector. At best, we are seeing some profit taking and then sector rotation takes up stocks again. So, we cannot consider that to be any sort of distribution.The 21,400−21,500 area acted as a resistance zone over the last week or two but now seems to have been crossed. But while the day punches out highs, the closes are failing to hold. Now, that could be some form of lower degree distribution too. Maybe people are undecided about the poll outcomes yet.My personal sense is that the outcome is palatable — Modi 3.0 is on; the team continues, so policy continuity should be there; opposition is better off, so some democratic process may come back; the government may be a lot more stable for different reasons and that can mean a steady government, etc. But different strokes for different folks.I think the market realised this very quickly by the evening of June 4 and buyers got back in. That flurry ended in three days. Thereafter, the buying has been sedated and will now require some fresh triggers. I have already explained in earlier letters that I believe it will come from a combination of Budget and June quarter results. Since that won't be until the third week of July or even later, the ranging action should continue for a few weeks more. Within that period we should continue to see some choppy moves within defined borders of the Nifty.I reckon those borders shall have a fulcrum in the 23,200−23,500 zone and shall fluctuate a further 300 points on either side. So, essentially, we are still talking a range of 21,900−23,800 here, something that I have referred to earlier as well. Since I don’t expect anything substantial by way of news inputs for a month, other sector indices should also, pretty much, form similar ranges and fluctuate within them. So, the entire market may fluctuate in a range of 5−8% of their current levels, no matter what sector it is..Private Banks' Bullish Run To Continue, Say Analysts.Chart 2 is the weekly charts of both Nifty and Bank Nifty (as an inset). Note how both the charts are in firm trends thus far. Even the wild volatility and dip of June 4 could not knock the trend down! The dips were exactly to the levels of the major support trendlines. These now confirm that the pathway of the market is upward and hence all dips in the coming few weeks should be used as buying opportunities only.If we look at the nature of the buying after the dip of the June 4, the retail has been active after the initial bounce back. Perhaps that is why the pace has not been forced yet. The FII flows appears to be limping back and they have now covered their shorts (before the results) and gone net long. See chart 3 that shows the move of the FII index positions. This time around, the client index positions shows that they were net long on June 4 (possibly trapped longs) which have since then been gradually liquidated and they are moving towards short now! So, positioning now in the market also shows some high confusion over the near term. Recovery from the hit to the sentiment from ten days ago is still seen playing out..Another aspect of the fund flow from FIIs is a judgement that I am making. They have not really bought much from open markets. Their money, instead, seems to be coming in through the plethora of bulk deals that are now happening. This may now become the new trend ahead, I reckon. The stocks that are coming out with QIPs and block deals are higher quality ones and they appear to be finding ready buyers in the market. And, these are not small tickets. Only last Thursday, I think, there were block deals worth some Rs 46,000 crores! And, it all went down smoothly, without causing even a ripple.This is a new market dynamic. The supply paradigm of the market is changing. Promoters are the new suppliers. Earlier, this was possibly considered a negative. But no longer. In fact, it has gone the other way — if institutional investors are grabbing stocks offered by promoters, it is being seen as a big positive for trends ahead! Possibly, we all will now have to change the way we used to look at FII flows into the market? It's not just these follow on offers, the IPO pipeline too is brisk and there too we are finding foreign funds queuing up.SIPs aren’t going away either. The quick recovery has calmed the nerves and business-as-usual attitude of the new government too is applying balm on the wounds of early June. The flow of retail funds now is also accelerating towards the PMS/AIF routes and that is proving to be a big factor too, acting as a big cushion during dips. Since the willingness is there, dips in the market just cumulates the funds intended for the market and unleashes a big buying when a bottom is sensed. This kind of price behaviour too will be a function of the future. So, expect a series of bursts and consolidation type moves to continue for many months ahead as well. All these will get a big boost, I feel, after the two events I mentioned earlier (Budget and June quarter results) come together ahead. If readers recall, my time cycle projection also has the market getting back into a good uptrend July onwards. So, we should, ideally, prepare ourselves getting ready for boarding this train again.One of the ways to do that would be to check out different sectors and their members. The way to do this would be to check out large movers in indices and within that index, find the large movers. These are the stocks the market favours currently. Now, post our trigger point towards end July, do we get fresh triggers in these names? If we do, then those are stocks that can be bought. For example, over the last one month, the realty sector has done best and within that Oberoi Realty has moved 28%. This comes on top of some big moves seen in May as well. Certainly, something substantial could be happening here. So, to keep a watch. Similarly, other stocks can also be found. Chart 4 shows this example of Oberoi with Nifty Realty index as an inset. This is just a random example to show you one of the ways to do this. Select stocks like these and keep them ready for evaluation post budget and results..Lok Sabha Session, Monsoon Progress, US Core Inflation Print: The Week Ahead.Summing up then, markets are inching higher but unable to show upthrusts. Perhaps some uncertainty at the high levels that would need fresh triggers to create those upward moves. Pullbacks during the rest of the month should be used to buy yet as there are no signs of weakness anywhere. Time to plan for the main event trigger that lies ahead of us even as we play a stock specific game across the coming weeks.

Nifty In Technical Charts: Prepare For The Budget, First Quarter Results

Fresh triggers are needed to push markets beyond the range-bound movement seen over the week.

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