Nifty In Technical Charts: Continue To Be Buyer On Dips

The week ended repeated the pattern of the last week- first three sessions were down and the last two sessions were up. The up sessions towards the end of the week restores the sentiment some and people queue to buy and they get fed in the new week.

In three days, the new buyers get shaken out because some news or the other shows up – or the market doesn’t respond the way people expect it to. Then, when sentiment is down, fresh buying comes in and hoists the prices higher, creating dismay among those who sold out or sold short.

Actually, the market has been doing something like this for about six weeks now, thereby creating a lower shadow weekly candle every time. This keeps bullish hopes up - that, and the fact that we are still oscillating around the 26,000 levels. One commentator mentioned that we have done some 26 oscillations around this level over a month or some such! Isn’t that just frustrating? But it is what it is. Since we can’t make the trend, we have to endure whatever we get. And right now, it is just more ranging. 

But ranging is OK, is the theme that I have been maintaining for weeks now, because if price damage is not occurring at the high levels, then there is no serious selling. And that prompts me to keep stating that we need to continue to be a buyer during dips. All it requires is for us to define the end of the dip and the revival from those supports.

As can be seen in chart 1, there was a touch down to the lower pitchfork channel (I have drawn two of them using different pivot sets) and the prices have recovered from just around those levels. This is what I mean by mapping support zones and waiting for revival signals to emerge. A nice green candle at a pre-defined support is the market’s way of telling us that it intends to respect that support. Readers can use any other tool as well like moving averages, trendlines, etc. etc.

The chart also shows certain horizontal lines. These are important price pivots that the prices will have to negotiate past when making its way higher. That's the problem with ranging markets — every now and then you will keep running into resistances and supports. Everyone these days has their own levels, depending upon what tool they are using to define the supports and resistances. So, make sure to know what your advisor is using.

In my letters, I mainly use the pitchfork and Ichimoku. I also use the Pivot levels but since the market has been ranging for a while, the pivots also turn a bit choppy and hence, I use them more for trading levels while in a trade than for analysis. Not that they cannot be used for analysis (they can) but I prefer not to, at this juncture. I find them so much more useful when trends emerge.

In last week's letter, I had expressed strong tidings for the Bank Nifty but it too followed the same pattern as the Nifty. But the chart, overall, is still better than the Nifty as it punches out new highs and the consolidation near the top is still quite attractive.

In the chart I have marked a horizontal level and till that is compromised (57725), bulls shouldn't really worry about dips and actually use any intra week pullback into supports on intraday charts to buy (the chart above is Weekly). Newer highs are still in balance for the index and, hence, the outlook is not dimmed in any manner.

The US Fed came through with the expected rate cut and also made it clear that there shall be more ahead. This galvanised the IT and Metal spaces some during the week. In Metals, the base metal pack of Hind Copper, Hindalco and Hind Zinc were among the best performers through the week but did witness some profit taking towards the end. They are likely to continue to keep the flag flying for the sector as their underlying metal prices are doing great.

In IT, almost all the big names fared well and this helped push some money into the sector and created winners out of stocks like Persistent and LTIM. Expect trends here to continue as the INR weakness is not going to ease in a hurry.

This can be seen in the chart 3 UsdInr, where a fresh upthrust is visible, continuing the strength of the Dollar vs the INR even as it struggles against the other currencies. The DXY is actually fizzling out a bit and broke the 99 level too last week. As can be seen in chart 4 of the DXY, the prices could well head for the 61.8% retracement at 97.83 in the current move.

But the INR is having none of that struggle as it is working out other issues with respect to the Dollar and hence, we cannot apply a one-on-one correlation with the DXY chart. Chart 5 is of Nifty IT where we find that the pathway continues to be smooth for a rise within the pitchfork channel. So, it would be wise to continue with a long approach to IT stocks for coming week as well. The New Age stocks underwent profit taking and hence, I would be a bit careful there.

So, there you have it. We are still within the range and hence, no fresh analysis to be presented, just reiteration of the same themes of earlier. Banks may still perk up and lead and so do keep an eye on them. Metals and IT should do well. All of them have weightage on the index and hence, some good tidings in individual leaders in there should probably act as a good input for Nifty to improve. Continue to be a buyer on dips.

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