Nifty In Technical Charts: Uptrend To Continue

On stocks, there seems to be a rapid sector rotation across the week and that is typical of a bullish phase.

<div class="paragraphs"><p>Representational Image (Source: Unsplash)</p></div>
Representational Image (Source: Unsplash)

From a weekly perspective, the market did trade up, notching gains mainly owing to the rousing gap last Monday. But the progress through the week was a very choppy one, as can be seen in the intraday chart shown in Chart 1. After a gapped breakout, everyone likes a nice clean uptrend to emerge. So, there would have been quite a few that may have been disappointed with the way the market moved. 

Nifty In Technical Charts: Uptrend To Continue

But there was action aplenty in the stocks area and not much complaint could be laid out that trading was difficult. In fact, the breadth among sectors was also quite attractive and had several sector indices hit all-time new highs—auto, FMCG, and capital goods.  

However, the 30-minute chart shown above is wearing a slightly weak look, in the sense that we have two basing or sideways type formations and the second is below the first. Generally, this is regarded as being bearish. But the fact that all these activities across the week could only manage to push prices down to the gap of last Monday implies limited bearishness. At least, not until further downside action is seen. So, a guarded view has to be formed.  

Arguing against any major weakness is the fact that indices such as Bank Nifty, Small-Mid 400, Microcap, consumption, MNC, industrials and many more have pushed to all-time new highs. You don't get to see sector indices and individual stocks hitting all-time new highs and expect the market to be in a major reversal mode!

Besides, the flow of news has been pretty okay as well. We had the highest GST collection ever, the government has more or less managed to keep to its deficit targets, economic growth numbers were higher than consensus, fund flow from FPIs continued... Nothing much adverse on the horizon to send the market into any kind of tailspin. So, realise that any such expectations harboured are only in the mind.  

In last week's letter, I had touched upon the impending push to new highs by the MidSmall400 index. It has done so. Both Smallcap250 as well as the Midcap150, too, have moved to new highs during the week that ended. This is indeed heartening as improving portfolio values brings the biggest cheer to the small investor and trader. That is the time they are willing to prospect for some adventure in the market and this is currently being experienced. Chart 2 shows the setup in the Midcap150 index.

Nifty In Technical Charts: Uptrend To Continue

But, as the market goes higher, it is always prudent to keep some trailing stops in mind. Expectations are on one side, what the market can (and will) do may be quite another.

Chart 3 shows the Nifty Future with two special trendlines—one (dashed) is an indicative line for traders to use as a stoploss level while the other (solid) line can be used by active investors. These are short-term tools indicators and hence, to be used by such players.

Nifty In Technical Charts: Uptrend To Continue

The chart also shows the RSI indicator on the daily charts and speaking about momentum, in the last week's letter I had stated that the weekly RSI setup shown in that report signaled continued bullishness. There is no change being indicated in the daily chart here, too, and therefore, one can remain sanguine about continuation of the upmove.

I have already indicated in the last letter about the expectation that the trends should maintain a largely upward traction until around mid-June, after which I would look for some declines into the end of the month. That is still almost 10 days away and hence, I would be happy to continue trading long on dips into supports on intraday charts.  

On stocks, there seems to be a rapid sector rotation across the week and that is typical of a bullish phase. This creates the quality of an active market and just seeing different sets of stocks move higher keeps the sentiment buoyant.

One should track the market moves to see if this behaviour continues. I would expect that it would. Active or momentum-based investing works pretty well at such times and quick 2–5% moves become the norm.

Of course, this would require some regular feed about where such moves occur and here is where a software like Neotrader really comes to the rescue. I use it every day to find potential action points early enough to get into those plays or catch momentum that is set to continue.  

One can look at the sectors that are hitting all-time highs and select leader stocks from them for stock plays. One of the tactics I advise avoiding is to hedge trades at such times. Realise that hedge is always a cost and I prefer to use that only when I am expecting the market to stage a turn soon. But when trends are clear and expected to continue, using hedges becomes unnecessary. I mention this here because I am finding that many traders are currently hedging their bets because of some fear of a decline setting in. This is where forecasting really helps. Mechanical trading recommends hedging or moving both ways (algos, in particular) but my preference is only to be with the main trend. Till the March low, we were with the down move. Since then, we are with the uptrend. Going against the main trend is never a good idea.  

Targets given in the last letter (18,880) are still open. Prices will be enabled to reach towards those once the Nifty Future is able to cross 18,724 decisively next week. If matters become favourable, then there may also be an attempt to poke the Nifty Future past the 19K mark (a wee bit) to get the public excited and induce shorts to cover. Would be watching for all these ahead. Lower side protection has already been shown on Chart 3. We shall await a price and time match soon, which will probably be the best signal. Not compulsory that it should happen but that is what we have to track.

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.