Nifty In Technical Charts: Good Times, Once Again?

The market lived up to expectations as prices thrust ahead, moving into the target zone yet again. But we have a top finish with pickup in momentum and hence, the chances are that the move shall continue. The Bank Nifty also managed to move past the key level mentioned earlier (40,124), but just fell short of a close above this. The Bank Nifty weekly candle was a bullish one with a lower shadow. So, evidently, the market left it late in the week to pull itself up into the critical levels. Chart 1 details the movement of the Nifty on 30 minute charts. .We can note the swinging nature of the move, but Friday trading restored bulls back into the driver's seat. The drop in Bank Nifty was even steeper, making the full recovery even more meaningful. The impetus came in from the U.S. as the debt ceiling talks made some headway and tech stocks showed some good numbers to tick up the sentiments. Locally, Reliance Industries Ltd. came back into action to power the Nifty forward and for the banks, it was a bit of a struggle before they made it to the highs by end of the week. However, the breadth across the week was quite positive, implying that as the market rose, lots of participation came in from a variety of stocks. Time counts continue to show us the pathway ahead. Markets were in good form after the 23rd (which was signalled for the change). Looking into the next week, I find that the whole of next week wears a bullish signature and hence, we should be seeing an extension of the up-move. I find 45 bar time counts as well as 144 bar cycles also playing out in intraday charts. On the daily charts, counts of 11.5 days are playing out. Both of these indicate that the next immediate turn is seen only around June 5. That is why I state that the next week carries a bullish signature. Bank Nifty is almost at new highs and on its weekly and monthly closing charts, new high closings are already punched out. Breakout to new highs in this trader index will ignite more positive sentiments. Market favourite Reliance is on a move and always gets bullish juices flowing. I have earlier mentioned that June would be a month for corrections and detailing the time cycles for the month, I find that the decline may be back ended—after the 13th. That would mean some more gains to be possible in the coming weeks. One of the big problems of the current rise has been the scepticism that has got built because of a lack of reaction during the rise. People are a lot more comfortable when a move occurs with periodic reactions. It makes them use phrases like 'healthy' and 'orderly'. But these are just the kind of silliness with which we fill our lives. A strong, steady rise of the kind we have had since the March low is the perfect trading market. No wonder option sellers in Bank Nifty have been dancing all the way to the bank. Even renowned commentator Chris Wood mentioned this in his recent post. Commenting on the sudden doubts about Prime Minister Narendra Modi returning in 2024 (after the Karnataka debacle), Wood says that the scepticism with matters like these alone will be enough to send the Sensex to a 1,00,000 mark soon!Even as adjustments occur in the post-Covid months to the number of new entrants (reportedly, the number of registered clients with brokers has decreased by about 20%), the steady progress in SIP flow into the mutual funds ought to keep the equity indices ticking higher. In addition, the FPI flow, too, has turned positive. With Vix staying comfortably down since March and actually resuming lower after a brief rally, it shows that the bulls dominate. See Chart 2. The small rally also reveals the nervousness that quickly creeps in whenever the markets stall (i.e. not even fall) and one needs to take that into account as well. Undoubtedly, as we go higher, the market will become wobbly and the ‘safe’ stop-loss levels will keep receding..So now, we have a good mix here. Rising trends, falling Vix, continued fund flow, sentiment still sceptical because of a lack of reaction, traders making good money from shorting puts, decent results coming through from stocks that count, all contributing to a rising tide. If the market goes higher, then we are looking at 18,800-18,880 as the higher target. What about momentum? That needs to be looked at as an important consideration for continuance. Now, here I find a signal that I always love—mainly because of its high success rate. This is the signal of the RSI taking support at the overbought zone. The signal is seen on both the indices. Chart 3 shows the signal on the Bank Nifty. .Typically, when we get this signal, I have often found the trends tend to accelerate. This signal fits right in with what I expect should happen over the coming week or two. If the signal comes through, then we should be seeing the banks turn active (after some subdued performance last week) and that will make for a double engine for the market (as Nifty components are on the move already). Should be fun, I expect. What adds to even more fun for market players? A good move in small and mid caps! That is what gets them all excited. And here is an interesting chart of the MidSmall400 index. Chart 4 shows a breakout to all-time highs in the making. .I would consider this an even more important breakout higher than the Bank Nifty. That gets the option sellers into a tizzy. But that is still a small (and fickle) lot. The broader market is the investor gang and that is very large. A move in their holdings (already in progress) is always the best input for sentiment build. This is what leads them to loosen their purse strings, look out for some adventure, take risks. It then builds a virtuous cycle with bulge bracket brokers (read: operators) getting into the game. This increases the volumes and that makes the ground for Institutional participation to increase. Sentiment then gets further upbeat. I am looking forward to some or all of this happening in the coming two weeks. That is why I stated that it should be fun. I hope the market doesn’t disappoint. But with price, time, momentum, volume and sentiment coming together, the odds for disappointment are low. At such times, one should trade the market actively (and perhaps even aggressively). No doubt, stops are part of any market, so in your enthusiasm, don't forget about setting stops. Get the capital, prepare well, execute properly and you should have a good time..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 BQ Prime or its editorial team.

Nifty In Technical Charts: Good Times, Once Again?

With price, time, momentum, volume and sentiment coming together, the odds for disappointment are low, writes CK Narayan.

Choose a plan