Nifty This Week: Technical Charts And More – Time To Be Nimble And Quick

"The week ended was a disappointment after the strong showing of the earlier week. We finished that one well but could not see any follow-through price action in this one. You can attribute it entirely to the goings-on in the United States market. Suddenly, it seems that everyone has made U.S. inflation our problem. Reminds me of a line I read recently, ‘the Dollar may be ours but the problem is yours’ said someone out of the US, and no truer word was spoken! The Dollar Index charged up to 20-year highs, decimating many a global currency in its wake, one of which was our very own Rupee.In last weekend's column, I wrote that the Rupee was headed for around 80 to 80.50 and we hit that zone on Friday with a tap at 80.204. But the talk of the town (or rather, the financial world) was the Euro reaching parity and dropping further. The last time this happened was some 20 years ago. Every currency was smashed as the might Dollar held sway. The RBI scrambled, trying out new ideas and, hopefully, all of those will work. But right now, it is the Dollar shortage and fears of a recession in Europe and perhaps the U.S. and the consequent fallout that is roiling all the currencies.One may wonder what all this has to do with a weekly analysis of Nifty trends? After all, why not just talk about Nifty levels and be done with it? Fair point. But levels, without a background understanding of what is creating those levels, would become a ritualistic exercise in trading. One has to then become an extreme price action trader and that is mostly possible by machines only. As humans, our minds demand reasons for every action we take. Without reasons, the mind finds it difficult to act. Unfortunately, the market doesn’t wait around until you get the reasons or even understand them. Nevertheless, one should attempt to be aware of what is driving trends of various assets across the globe and consequently, in India too.So, here goes some simple correlation building. The first chart shows the Dollar/Rupee as a candle chart and the Nifty Futures as a line chart..One can note the inverse correlation between the two. When the Dollar/Rupee goes down the Nifty goes up and vice versa. I have marked those in the chart. This time around, the pace of decline of the Nifty has been a bit sharper for the equity index, maybe because FIIs are drubbing the market so much. So, we do need to keep track of this relation to have an idea of how the Nifty will respond to currency moves.Now, a curious thing. The ellipse highlight at the end of the chart now shows both the plots rising. Does this mean the intense correlation we had in recent times is fading? I have no idea why this should be so but I am guessing here that the combination of declining oil prices (always good news for India) together with the sharp focus of the RBI (bravo, bravo) may have much to do with it. Whatever be it, I shall be happy if the Nifty starts traversing a different route but perhaps that may be wishful thinking.But all this may give rise to thinking that the Rupee is done in and that the Nifty may never recover. Far from it. The real deal is not that the Rupee is weakening but more that the Dollar is strengthening. For evidence, take a look at the value of the Rupee vis-a-vis the other currencies like the Euro (87 to 80) Yen (0.70 to 0.58) Pound (101 to 94) etc. The Rupee has actually strengthened against the other global leading currencies across the last year. So, this whole thing is a Dollar gig and tied to inflation in the U.S. which forces the U.S. Federal Reserve to raise interest rates to control it, which in turn fires up the bond yields, making bonds attractive investments for funds. So, money is withdrawn from other countries to invest in U.S. bonds which increases the demand for dollars. And so it goes, in an ever-tightening loop, until something shall happen to break it.The Nifty had reached 16,200 which was a target for many a trader and hence there was some willingness to take profits near those levels. And, when the prices started to tumble a bit, that selling would have increased. With the currency market roiled, the sentiment was soured and buyers didn’t really step forward. Until perhaps, Friday. Here is the intra-day pathway across the week..Enough people were willing to call it quits when the market fell sharply across three sessions. Shows you how tenuous the sentiment has become. Most people simply have no conviction. Now suddenly, the buyers step up despite the bad news still being around! Sometimes, the market certainly drives you around the bend.The solution is to stick with the bigger trend. That is the only beacon we can have in a market that seems to be quite a bit volatile and being thrown around by global events. There, we have no misgivings, not yet. The third chart shows the weekly candles with some annotations. The main resistance trendline is far away. The near-term resistance trendline is broken. The gap is filled and held until the end of the week. The short-term support trendline is intact, as yet. So, like Alfred E Neuman of the old Mad Magazine would say, What, me, worry?.The market will tell me if I have to worry. Once I have understood the background in which all these are happening, I can be content to look at the signals on the chart and follow them. The problems really emerge when you have no idea of how and why the signals are forming on the chart and so you cannot bring yourself to believe them.The next question that emerges, then, is, will we continue higher? Ideally, so long as we don’t give up support levels, we should. But the waters are muddied by this currency tumbles. The chances are that the market may move in fits and jerks and be restricted to a bracket of, say, 500 points on the Nifty across the rest of the month, or perhaps even beyond too. The situation as of now is very fluid and one should therefore hold opinions rather loosely. For action, just follow one side, either wait to short rallies or keep buying dips. Going both ways will require very high levels of skills, the kind that most ordinary traders don’t possess. Since the up move is not yet torpedoed, I would prefer to keep buying supports with a monetary stop. I may get stopped out a few times but hey, that’s part of the game.Earnings season kicked off with TCS posting a bummer. HCL Tech followed similarly and that turned the pall into gloom for IT stocks and the rest were pummelled some. The dog days for IT seems set to continue. But prices on the IT Index are coming into a support zone and most stocks are dragged down considerably already. So maybe a couple of good numbers from some popular ones may create an oversold rally? The fourth chart shows the Nifty IT with annotations..The previous consolidation is marked and corresponds to the 50% retracement of the long haul up from the 2020 lows. There is also a cluster from a downside projection of 1.618 to the first leg of the drop. Watch the results of midcap IT names closely. And Infosys. Maybe they will do the trick. But trade only if these create the context. Ideally, the Rupee weakness should have created some gains for export revenue stocks but there is value destruction in IT stocks in the U.S. and so maybe players here are nervous.But dollar gains may be shoring up another sector, pharma. The fifth chart details the moves. Having dropped to the 38% retracement of the rise from 2020 lows, the sector is showing some spine. Individual stocks from the sector still seem to be struggling but a few names are seeing some volumes and perhaps it is time to keep an eye on pharma majors. Good results here will do the trick for a few. Or favourable news flow..Guess that is enough stuff for us all to be busy with next week. In a song Jethro Tull wrote, ‘Jack be nimble, Jack be quick’. It is time for us all to become like Jack. Be nimble, be quick and… be happy..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."

Nifty This Week: Technical Charts And More – Time To Be Nimble And Quick

The market may move in fits & jerks and be restricted to a bracket of, say, 500 points on the Nifty across the rest of the month.

NDTV Profit

NDTV Profit

Follow Us

DOWNLOAD THE APP

Nifty This Week: Technical Charts And More – Time To Be Nimble And Quick

The market may move in fits & jerks and be restricted to a bracket of, say, 500 points on the Nifty across the rest of the month.

Choose a plan

Follow Us

DOWNLOAD THE APP