Nifty In Technical Charts: Bears Still Dominate

In last week's article, the view was that it would be a sell on the rally type market. Though Monday started with some distinct weakness, prices managed to recover for the next three days on a reckoning that the U.S. rate hikes would moderate or even be halted and allowed the Nifty to move towards the nearest supply zone at 17,250. Sellers were ready and waiting at that level and promptly set about their work. Negative news flows—STT hike, Deutsche Bank etc.—did in whatever covering attempts occurred. As can be seen in Chart 1, 30min Nifty futures, there has been a range going on with 17,250 as a top for about 10 sessions now.

Obviously, therefore, any thoughts of a rally can be considered only if the Nifty can haul itself above the 17,250 levels. Even then it would be a tough grind as there are more supply points along the way, a big gap zone to deal with and, finally, an overhead resistance trendline to be dealt with—around 17,500. So, progress, when it happens, shall be a slow affair and may be often retraced.

What about halting of declines? Well, technical evidence on that is not so encouraging. See chart 2, the daily Nifty fut with oscillator panels.  

Declines can halt if prices hit support zones. The former swing low has been reached (the grey band). Prices have slipped beneath the 50% retracement and the 62% retracement now awaits at 16,650 area. Now, that can be the next target zone for the Nifty if declines continue. Hence, a break of last week's low would set it up, most probably. So, the first sign of weakness is if the low of last week at 16,931 were to give way.  

Next, oscillator charts seem to be in support of more declines to occur as the RSI indicator has bounced back lower after rallying mildly to the 40 levels last week. Likewise, the ADX line is on the rise, confirming the negative DI phasing. It is also noted that bears have managed to sustain the negative DI dominance since the crossover in mid Dec 2022. 

Both these elements indicate that it will require some really big effort by the bulls to overturn the tables. Without positive news flow, this may be difficult to achieve and sustain.  

What are leader stocks doing on their charts? The story there, again, is not at all encouraging. Barring ITC Ltd., which is moving sideways, every other index-heavy stock is into a definite intermediate downtrend. The IT twins—Infosys, TCS—are much pressured as are the Bajaj twins. The banking pack too provides no relief with SBI actually turning down on the back of the news on tax concession removal on debt funds. Reliance is headed lower. Auto pack is weak as well. So, no saviors are likely to emerge from the main index contributors.  

Can a rally in the US markets help? Chart 3 shows the correlation between Nifty and Dow.

Over the last couple of months, we are moving completely in alignment with the Dow. Therefore, any relief has to come from there only! So we need to keep our eyes peeled on Dow and Nasdaq charts and our ears cocked towards news flow of events in the US. One thing to note in the chart 3 is that the Dow’s bottom currently is considerably above the October 2022 lows while the low of Nifty is back down to those levels already. So the Nifty is at the 50% retracement of the move from last June, while the Dow has done 50% retracement of the move from September-October lows.  

Note here that if the Dow cracks the support, and the Nifty continues to maintain its close linkage with the Dow moves, then the next support for the nifty is a good distance away. This may be bad news for those looking for nearby support.  

We have a forecast for the yearly low to be recorded by March end. Originally forecasted for 16,500-800 area. We are into that time as well as the price zone. Hence the coming week should tell us whether this price-time window is going to hold. This will then require that the U.S. markets should hold up rather than crack. I have never been a very close U.S. watcher, but in the coming week, I am certainly going to be paying attention to everything that comes out of the U.S.—stocks, commodities and currencies, whatever.  

Big bottoms form either with a big sell off or from sustained ranging. All markets these days are driven by machine trades and this doesn't allow any range to develop and often we see markets whipping around within a day or two of a top or a bottom. So, we may see some spiky moves to the lows that get swiftly turned around if a bottom is to be formed here and now. That is another pattern signal that I would want to track in the week ahead.  

What if this time window gets passed without a reversal? That is a possibility too, but less of a probability. But we do have to consider it. I find that there is really no good time signature for April that can create a durable bottom. Therefore, if the March time window is exceeded, then the decline can stretch beyond April into June. We shall cross that bridge if we come to it.  

So, the coming week is going to be largely walking on eggshells! Lots of events to watch, so the number of trades should be reduced lest attention get diverted. Keep an open mind and double check every data point that you think is meaningful. At turning points, noise may be high and therefore focus is quite necessary. Bring that into play.

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.