Nifty In Technical Charts: A Hint Of Discord?

Markets continued to move steadily and new all-time high was recorded on the 20th. Just as people were relaxing, the selling came out of nowhere and shook the confidence of many. Within a short span of a couple of hours, the market erased a whole lot of gains that had accrued to the portfolios and single-day losses up to 10% were reported by many. While the Nifty fall of the day was an unremarkable 1.4%, the pain was felt from the sharp 3.5% decline suffered by the mid- and small-cap stocks. Now, that inflicted a lot of damage since short-term plays (and a lot of it leveraged play, too) were suddenly called into question. This was the biggest pullback since Oct. 18, but the earlier one was spread over six sessions (about 1,010 points) compared to just a single session this time (for 617 points). So, a sense of disquiet was indeed created. See chart 1. The two areas are marked. In the process, the prices also broke through the supporting moving average line which was faithfully pushing the trend along until then..There were many who jumped to take credit for having ‘called’ for a reaction. I had mentioned this in the last week's letter. Now, everyone is vocal about how the market was ‘stretched’ or ‘showed some froth’, etc.By Friday, however, the market pulled back about 62% of the decline and now its fate hangs in balance there. The swift revival has calmed the nerves of many, but it would have also reinforced the sense that this is indeed a buy-on-dips market. The long weekend and the pullback would certainly have led to some more longs being pushed out. Very tough for traders to remain sanguine after experiencing some pain and when offered a way out, they take it, especially on winning or marginal trades. So now, what would be left over as pending longs would mostly be losing positions that have (in the minds of the holder) some chance to kickback yet. This means that higher levels next week will still see supplies coming in.They key element, therefore, is whether we get some good news across the weekend that can encourage people to buy afresh. Without fresh buying coming in, it will be tough for the Nifty to continue higher. Problem may be that it is a holiday weekend across the globe and hence, quite unlikely that we may have any market moving events. Thus, another reason for expecting some tentativeness when market reopens on Tuesday.But sentiment may be ‘stirred but not shaken’ (as James Bond may put it) and so people will still be looking at action. Therefore, the focus may be more on stocks than on the index. IT was the best performer for the week (up nearly 8%), while Energy and Oil and Gas was a good performer across the month. These stocks are present on the Nifty with some weights and hence, may help the Nifty stay aloft a bit for the end of the year expiry trades. Metals also traded well this month alongside Real Estate. Financials were a bit dull and although PSU banks are okay yet, they may not be able to move the needle much for either the Bank Nifty or the Nifty.A simple thing to do would be to take the top movers of the sector and continue to check if there is a continuation in those stocks. Define the nearest support zone in their daily charts, so that you can also attempt to buy a pullback too. Typically, high momentum tends to persist until it meets with some larger selling. Until then, profit-taking in such names will only drive it back to the nearest support.Let’s finish the analysis for the week ahead before moving on to a check on our projection for 2023 and how it panned out. Chart 3 shows the set-up as of last week..As mentioned earlier in this letter, the chances are that the Nifty or the Bank Nifty may not really flash big gains in the last week of the year. In the chart, we note that a mechanical system has already flashed an exit and prices are beneath the Gann trend indicator. Note that the S-R bands have flattened, which usually is an indication that we may expect some consolidation type trend ahead. The small green bands that are drawn across the chart are demand areas where one may expect some supports to emerge but these are a bit further away from the current prices. Any renewed decline may see a quick abandoning of long positions, pressuring the indices lower. The best that you may get is a shot at the previous top but even that I consider only to be an outside possibility.Nifty Bank is positioned similarly. Here, too, the prior high seems quite tough to surpass as the supply that has emerged has been large enough to hold back rallies.A change in the view shall occur only in the event of new highs being achieved with some robustness. Chances are that the weekly low at 20,900 area may not break but may come in for a retest. Break of 47,150 may see more pressure emerge on the Bank Nifty.The Nifty Midselect is better positioned to continue towards a challenge of the highs and perhaps surpass it too. This index (available in FnO) is dominated by Financial Services (29%), Capital Goods (20%) and IT (13%). Hence, second line stocks from these three sectors should be tracked for some opportunities in the week ahead..In the letter entitled ‘Looking ahead into 2023’ written Dec. 22, 2022, I stated some of the following.Analysing the patterns till 2021, the first forecast was, "So, if the pattern has to persist, then we should be looking at a decent gain in 2023! “Also, this observation, “I expect 2023 will finish far better than the highs made in the first 5 months of the year.”Well, we certainly got that, didn’t we? From the lows (March) to the highs (December), the market moved 28%. Those that were tuned into our analysis should have done fairly well, I would think.Next, I made a projection for the low of the year to be made early into the year. Here is what I had written, “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…” I wrote further that, “We can expect 17,000 level to be the lowest Nifty level for 2023 (to be recorded by March-April)…"The actual low was recorded on March 24, 2023. The low was at 16,930 on that date. Now, that was a nice price, time and pattern match.Writing about the progress after the lows, these aspects were mentioned, “The confirmation of this would be when prices move past 17,600 after having hit the low earlier. That would be the big buy signal for the next year… The upmove can take the Nifty to a target around 19,500/20,200 by December."That turned out to be a pretty accurate description of how the market played out in 2023. There are many in this market who claim that the markets cannot be forecasted. I beg to differ. The evidence is out there for you all to see. And this was done many months before the actual events. And it is not just 2023, I have been doing these annual forecasts for the past 25 years and it has been quite rare for them to be off the mark by much. The key is that it cannot be done using standard technical analysis (which is great for trades and trade plans), but needs something more detailed.Here is a chart of 2023 (chart 3) with some annotations on the forecasts..A forecast was also made for the Bank Nifty for a bottom to be made in the 39,300 area with a projection for a high around 47,500 by the year-end with an additional note stating, “As in Nifty, low first and highs towards end of the year.” The two indices tend to run a similar path, so I just gave the extremes I expected for the Bank Nifty as well.Here is some more detailing that had been provided. “2023 ought to see a return to action by mid- and small-cap space. The wall of retail money had kept the market well defended over the last year and more and in the coming year, we ought to see a very good gain from this space. It would not surprise me to see peak returns (intra-year) of as much as 40% and the year may finish with around 25% plus gains for the good stocks from these two areas.”We did see some substantial gains in this space through the year (55-58% from low to high so far) and the SIP inflows just soared across the year. The expectations were exceeded very comfortably.So, there you have it folks, the post mortem on our 2023 forecast. The idea is to give you a working road map for the year. I trust this was useful.Next week, I shall write about what I expect for 2024 and make some forecasts. Stay tuned..CK Narayan is an expert in technical analysis, the founder of Growth Avenues, Chartadvise, and NeoTrader, and the chief investment officer of Plus Delta Portfolios.The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.

Nifty In Technical Charts: A Hint Of Discord?

Without fresh buying coming in, it will be tough for the Nifty to continue higher, says CK Narayan.

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