Nifty In Technical Charts: Bank Nifty Holds The Key To Continuance

While all of us were focused on Donald Trump, US, Tariffs and talking about recessions and Nifty earnings, the Bank Nifty simply ran away with the cup! What an outperformance! And I don’t know about the others, but I certainly missed it. I am happy that it happened but I am totally stressed that I never saw it happening. Bad job, that.We see the point in Chart 1. On the left is the Nifty and on the right is Bank Nifty. Look at the divergence in that move..For the record, the two indices have moved roughly 10% from the 7th April dip, so one may be wondering where is the outperformance. The real deals here are two: 1. The Nifty in the fall to 7th April low made a new low for the current decline from the all-time high.2. But the Bank Nifty (BN) in that same fall retraced 50% of the fall and hence its true low remained the one recorded back on 11th March. Even that low was multiple lows around the same levels (around 48,000) whereas the Nifty kept making successive lower levels. The signs were there but I did not highlight them to my readers in this column and that is derelict of me.But the key element is that the rise of the last week has now carried the Bank Nifty to just 0.5% shy of an all-time high! In contrast, the Nifty is still struggling at almost 10% away from the last high recorded! Now, with a very small effort, the BN can move into all-time high and that can set off a new domino of its own.All 12 stocks of the BN recorded gains but 28% of the Nifty stocks still recorded losses for the month. Maybe they rallied in the last week but they must have fallen so much that even with a near-vertical rally, those stocks couldn’t drag themselves into a small positive too.The reason I am going into all this self-flagellation is that successful trading is all about the right stock picking. That is what creates most money in the least possible time.Of course, we all made some money (or should have) since we got the bottom right and continued with bullish expectations (albeit a guarded one) for the week ended but we could have made a lot of money if we had focused on the banking pack. It is possible that some of you may have stepped on the pedal and done better and that kind of swiftness is indeed required. But as the week wound into a close, the best place to be perched for the week ahead is in the banks.Was there any news flow in banks? Not that I could find. But maybe there is and I can’t find it. What I can do, however, is to examine whether the Bank Nifty will burst into new highs in the coming weeks. Why this extra focus? For the simple reason that the banks carry some 30% plus weight on the Nifty and if it continues, then the Nifty gets (sort of) a bit of a free ride on its coat tails.Let’s look at the returns of stocks from the Bank Nifty on a monthly (Mar 17-Apr 17) basis. Table 1 shows this..JM Financial Cuts Nifty EPS Growth Forecasts, Flags Risks From Key Sectors.But surprised at the result, aren’t you? Ya, everyone generally thinks that the leaders would automatically be at the top of the table. In fact, the biggest weights of this index are at the lower end of the spectrum (HDFC Bank, ICICI Bank, SBI and Kotak). The question is, can the top order batsmen of this table continue to gather the runs or will the real top order batsmen pick themselves up and start firing shots? Truly speaking, they need to.And there, we do seem to be having some good news. The top four private banks' charts are in splendid position to continue and create the traction. SBI too is in a good position to pitch in. The others don’t look too tired from the effort so far. Hence, it is a good bet that the Bank Nifty will punch out a new high in the coming week and head higher. And Chart 2 is an expectation of how high it may head. The three target boxes are around 55,140/56,110/57,100 and the expected date for a high is 28th April..Will that be a straight-line move? Of course not. You may see some consolidations and then a final zoom. What about the earlier mentioned turn dates around Apr 21-22? Those continue to stand and we do need to watch if the lows of those dates get broken by the Nifty, which would warn us about a pullback in the near term. But as far as the coming weeks are concerned, the support near the 21,800 area is pretty solid and the threat held out by the break of the long term trendline on the weekly chart (see last week’s letter for discussion on that) all emerges only if the recent low is broken. Based on the assumption that the low will not break for now, the current up-move will be a retracement of the big decline of the last 6 months. 50% puts us at 24,150 while 62% gives 24,680. Last time we had spoken of an evening star appearing at the levels of the resistance near 23,800 but this time around, it seems to be firm long body candle at the same level, suggesting a follow through higher. Some Gann price cycle resistance is seen at 24,050 and that would have to be crossed for further gains to be made. Maybe a small halt there early next week, some consolidation and then another drive higher by 14th May (a targeted turn date for May). This is what I am mapping for the weeks ahead. As stated earlier, the big trend change would be caveated at 21,800. For those trading the smaller term, a trailing stop could be below 23,400. Chart 3 shows how Gann angles and price cycle levels come together..Beneath US Market's Uneasy Calm, Dread Runs Deep Across Wall Street.The start of the results season has been mixed with IT majors not faring too well. Others have been somewhat better. But expectations for auto, FMCG and even pharma sectors are not very bright, so we may have to wait for some big names to surprise the Street with performances for speedier or different outcomes.One of the areas that needs urgent repair is the mid and small cap space. Chart 4 is monthly Midcap Select chart with pitchfork.It can be noted that the price action is still captured within the pitchfork. The index has rallied from the lows of March and is seen doing well in April as well. Given the consistency of the decline, a breakout of this down sloping pitchfork is needed for us to call for some bottoming in the mid cap area. Of course, this area is quite a large one in the market but any breakout that may occur in this narrower index of top companies will be a good signal of a revival. The logic being, if leaders cannot revive, then it will be so much tougher for any revivals in the balance to sustain.We are not too far away from staging a breakout above the top channel and hence this quarter's results may prove to be decisive for this segment of the market. Something for us all to track..Powell To Volatile Stock Market: You’re On Your Own, For Now.Moving on to matters Trump, the debate rages on. There is some danger of it degenerating into a US vs China trade war and hence other countries may get hurt from collateral damage of that battle, possibly, if it comes to pass.One of the things about the current crisis (if it can be called that) is that, unlike other crises like, say, Covid, this one can be ended with a stroke of a pen! The earlier Covid or global financial crisis were not matters that could be ended overnight but this one truly can be!Also, by recent accounts, the markets appear more scared of China retaliations rather than Trump actions. The latter are gambits for negotiations but if China doesn’t bite and moves off into another direction, those could cause unanticipated accidents. Then, we shall really have a mess on our hands. So, the Chinese hold the key in this rather than Trump. The ground has probably shifted?Be that as it may, our markets are rallying out of sheer relief, led by banks. Why banks, I don’t know, but I am not complaining. Lead away, I say! Good results here should provide fresh triggers for the banking lot to improve. We shall look for that to provide us with cues for the coming week. While big changes may be afoot, our trades and investments happen in the near term (for most of us) and we can ill afford to get either carried away or obfuscated with the amount of decibel levels that is present in the market currently..Stock Market Highlights: Nifty, Sensex Post Best Week In Four Years In Holiday-Shortened Trading

Nifty In Technical Charts: Bank Nifty Holds The Key To Continuance

All 12 stocks of the BN recorded gains but 28% of the Nifty stocks still recorded losses for the month.

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