Nifty This Week In Technical Charts: Trends Still In Need Of Some Help

There is nothing much that can change the bullish picture in a hurry, but our self-doubts and, perhaps, the fear of heights.

<div class="paragraphs"><p>(Photo: Somruthai Keawjan/Unsplash)</p></div>
(Photo: Somruthai Keawjan/Unsplash)

The week gone by was certainly a roller coaster! Recently, as I wrote earlier, we have been plagued by this large opening gaps and those continued to persist. But the swings that we got were much wider compared to the earlier week and it was finally a relief to many that the market finished where it did. That, kind of, made up for all those gyrations, I suppose! Chart 1 as ever, shows the intraday moves in 30-minute intervals of the progress of the Nifty through the week. The Bank Nifty was seen behaving similarly.

Nifty This Week In Technical Charts: Trends Still In Need Of Some Help

The Bank Nifty cleared former highs to record a new all-time high while the Nifty is still a whisker away from this. In recent articles, I have been writing that the banks will do the trick but somehow they stalled for a couple of weeks and delayed the process. Friday’s push higher was on the back of some relieved action from the U.S. markets to the lower inflation print. In a flash, the markets across the globe have concluded that the era of rate hikes are probably over and it is back to the good times! Will it be as simple as that? I doubt. The Dow is still about 8% away from crossing the highs and for the Nasdaq, it is a 29% haul upward from current levels if it has to clear the tops. So that’s a big ask for the moment. So, is the decoupling thingy at work here, then? Perhaps. We have certainly stood apart from the U.S. market weakness. Question now is that will we push higher if the US troubles are a bit behind them?

With the Nasdaq on a move, Indian IT stocks rallied smartly on Friday and were probably the main contributory for index gains. Buying IT stocks is an easy game right now, as many are sharply retreated and there is a feeling in the market of an oversold rally emerging. Similar feelings are harboured about the pharma pack too but here too the market has been less than obliging, preferring to put up just two names (Cipla and Sun) while hitting others down. So, can the Nasdaq rally continue and will it continue to influence the local IT names. Short covering in IT names certainly occurred. There may be follow through only in a couple of names, if the charts are to be noted. Can the tech sector continue to rally in the U.S.? Well, leaders there continue to look to be in form and hence may attempt more gains and that could keep local IT stocks still in play. Nifty will get a leg up from that.

Is the Nifty perched for big gains? Not immediately perhaps, if the daily chart is checked. Chart 2 is shown here with a pitchfork added and there is two-point Fib ratio extension applied as well. There is some immediate overhead resistance within 100 points from current levels and hence that resistance cluster of a media line and a Fib extension may need to be crossed for more gains ahead.

Nifty This Week In Technical Charts: Trends Still In Need Of Some Help

Even if the IT stocks were to pitch in once again on Monday, we find that the IT index too is poised to hit some resistances about 1% higher from here. So may not aid the Nifty cause much. See chart 3 for the IT sector index chart.

Nifty This Week In Technical Charts: Trends Still In Need Of Some Help

Is it then back to the banks to come to the aid of the Nifty? Friday saw the HDFC twins in fine form, pushing the bank index higher as well. But can they repeat that performance this week? Seems unlikely. The other charts don’t look so well set now to give the Bank Nifty a push. Even the PSU banks seem like they may want some rest. The Bajaj twins too seem a bit on the backfoot. So, that’s about 35-40% weight that is not going to come through much perhaps. And 15% is IT pack and if they are going to stall, too, then half the team is not backing the chase! Leaves energy at 14% weight—and that is mainly Reliance. Now, here is something that you may want to keep an eye on, as the chart shows that there could be some upward action in the stock. The other sector that has weightage is FMCG (11%) but here too, only Britannia came through with good results and ITC continues with its good trend. The rest are, kind of, also-rans for the trend right now. So it seems like we may need a multitude of stocks to come together for the rise being signalled by the 300-point move of Friday.

Options data are holding out for some possible gains. Last week the PCR in the Nifty was largely negative but has climbed above 1 by Friday as put shorts came in. So, the mood here has shifted from limited upside (last week) to bullish (this week). The data pegs the support to be at 18,000 levels and short-term players can have their trend tripping point placed over there. The positioning seems more aggressive in Bank Nifty where the 42,000 strike carries a whole lot of positions, making that a pivotal price for the week ahead. It is better to keep 41,500 as the trip-up point to be on the safer side, for short term traders. In the Bank Nifty too the PCR is at 1.15, showing put shorting activity.

Earnings season has almost run its course. Now all the second rung stocks would be the ones left to announce the numbers and this is not going to move the needle for the index. But it can have an impact on the sentiment. So far, earnings have been OK. Market has decided to brave it and wait for the margins to improve in most cases. Many stocks have shown revenue growth but margins have been under pressure. This means another quarter to go for the next round of action.  

Looking at the charts it seems that the levels indicated by the option data. There are gaps and swing high points at the levels near 18,050 and 41,600. So these ought to act as support levels during dips and these correspond to the large OI build at strikes near these. The ratio chart of private vs public sector banks is seeing an uptick, meaning, the private banks may now get into a better stride. Can see this in Chart 4.

Nifty This Week In Technical Charts: Trends Still In Need Of Some Help

It would be something to watch for during the week as it can have repercussions on the Nifty trends as well. So Bank Nifty staying above 42,000 would be the key element. The oscillators on the Bank Nifty are in continued good shape and the ADX is almost into a power trend mode, which is a good thing if the right kind of trigger comes along. This can be seen in Chart 5 that shows the Bank Nifty with the ADX and the RSI. Both are rather well placed and can aide advances if they occur.

Nifty This Week In Technical Charts: Trends Still In Need Of Some Help

There is nothing much that can change the bullish picture in a hurry. It is only our self-doubts and perhaps the fear of heights that may create issues for traders. If we an avoid those, then dealing with the rising market may not really be much of a problem. The one that we may face is of a ranging action setting in again, owing to the lack of performance of index heavyweights. But nothing is ever so simple in the markets, is there?

Everyone is waiting for the mid- and small-cap indices to revive but looking at the charts there, I am afraid the bulls are yet to arrive to these parts of the markets. So, some patience is to be exercised here and one may even want to consider rejigging the portfolios some, exiting the non-performers and then carefully choosing something else to put the money back to work.

Evidently, a week ahead where the market may need some help to get going. Our job next week is to see whether helping hands are held out or the market is just allowed to drift a bit.

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.