Nifty In Technical Charts: Declines Looming In The Near Term

Best to stay light and nimble, picking our fights carefully in trading, using guerrilla tactics.

<div class="paragraphs"><p>The National Stock Exchange Ltd. building in Mumbai (Photographer: BQ Prime)</p></div>
The National Stock Exchange Ltd. building in Mumbai (Photographer: BQ Prime)

After few sessions of bullishness, the main indices got slammed into the weekend. Bearish engulfing candle for the Nifty, dark cloud cover for the Bank Nifty, high waves for mid- and small-cap indices, the picture certainly doesn’t look too healthy. The wide gap-down on Friday is certainly a downer and will make the job of bulls very tough in the coming week. Chart 1 shows a bearish set-up on Bank Nifty.

<div class="paragraphs"><p>BQ Prime</p></div>

I have used Gann price and time channels here to find turning points. Can note that every time count produces a turn. The most recent one was during the week and prices have turned down from there. I have added a simple trendline for resistance too as it seems to be working rather well. In the markets we should use whatever works. We note that the price move into a tested resistance line was coincident with the time count. Hence the gap down move from there is important.

This is to be seen in the light of my longer-term analysis that I had presented in my January article. Here is an excerpt from that article published at start of 2023.

Looking further forward into 2023, let me do some crystal ball gazing. In the projection for 2022 made last year January, I had stated that the high for the year would be made in late November. The Nifty high was made on Dec 1st and since then there has been a slight slide. My take is that this slide should continue, in fits and jerks, till around March or extend to even the first week of April 2023. The projected low for the year, therefore, is in the last week of March to first week of April.

Since then, I have been reiterating the falling trend and marking any upmove in the market as only being a rally. We are now headed into the price and time window that may probably create a low for the year. The next two to three weeks, therefore, are going to be a crucial time for trends for the year. One has to remember that all analysis is probabilistic but they prepare us for eventualities that may present so that we may prepare ourselves for it if they do present in the way we envisage it. That is the whole purpose of analysis.

Chart 2 shows the Nifty daily with Gann angle lines drawn using fixed scales. I had used this in my January article to make a call for declines and to catch swing highs and lows.

<div class="paragraphs"><p>BQ Prime</p></div>

The trend was done in when it broke the first angle line (see 'Jig was up'). The reason was because I had forecasted in earlier letters that the market high would form by Dec. 5 2022 (it topped on Dec. 1) and therefore candle patterns on the top followed by break of an angle line was enough confirmation for me. I have used other angle lines to track the price action and we note that every swing down respected the next angle line-right down to the current levels. Friday was a bit of a touch and go—a gap down slam into the 4x1 angle line. The 8x1 is the last line of defence for a trend and that lies around 17,100-17,200 area and may be reached before March 24.

The entire structure since Oct. 21 top is corrective and getting complex. To find some price supports for the current decline, we can overlay a simple Fibonacci calculation of the last leg-up; we are trading right now at 0.382 correction. The gap-down suggests lower levels which are 17,100 (0.50) and 16,660 (0.618). See chart 3 for this. A break below the 0.618 levels will take us into another round of complex Elliott wave demanding revision of analysis. So, for now, we will stick with the simple stuff.

<div class="paragraphs"><p>BQ Prime</p></div>

A look at the RSI on the lower panel of Chart 3 will tell us immediately that the inability to cross even 50 levels for weeks now shows the corrective nature.

The sentiment, which was largely neutral so far, is now starting to slip and for the short term there is a fear of more declines. India VIX has picked up a tad and the last high value print was around 16% (in end February) and that is the level to watch whether the fear is taking root further.

The news flow out of the U.S. isn’t pretty as of now. A bank going bust is suddenly bringing some 2008-type memories back! The other data seems to continue to suggest that inflation there is not coming under control as had been expected by optimists earlier. So, fears of continued rate hikes re-emerge and there have been a couple of statements already from Fed guys. That would automatically translate into fears of rate hikes locally and that would keep the lid on our markets or even help push it lower. Forward projections for the U.S. 10-year yields are for continued rise until around the middle of the year. So, this may keep bond markets in a flurry and also impact currencies across the globe. These events are macro driven and usually beyond the comprehensions of a common market participant. Hence, most people are going to turn into follow the leader (price action) and that, kind of, guarantees volatility for the next few months. Not the best of times ahead of us in the near future.   

The simplest way to track markets now would be to see if lows continue to break. The last low of significance to traders is 17,345 on futures (and 39,597 for Bank Nifty futures). The Nifty low is nearer compared to the Bank Nifty so that ought to be watched first. Watch the recent swing lows of ICICI Bank and SBI for clues on Bank Nifty progress to the downside. Then Reliance, Bajaj twins, HDFC twins and two IT majors for assault on their lows. If attempts are seen, then we should see the correction deepen. If the assault is mixed to diluted effort, then we may see congestions. Main point though is that it is difficult for market to suddenly turn and run up from here. So, shelve those bullish expectations for the near term, is the message.

On the monthly option series, I find a large position only at the 17,000 PE so that still seems like the bridge that the bull army shall guard. Call short additions are more in the weekly series so those are trading positions that change every night. But option changes are something that I would watch in the monthly series. Local news flow of corporate nature is limited and hence triggers are limited. So, market may respond to international triggers. This is often tough to play as it causes opening gaps. Hence, option plays too may get limited to day trades, leading to continued intraday or intra week volatility.

Best to stay light and nimble, picking our fights carefully in trading, using guerrilla tactics. Investing opportunities will keep emerging here and there based on individual news or order flows—after all, people have to keep doing something. Those will be stray pockets of opportunities for alert short-term investors.  

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 BloombergQuint or its editorial team.