Nifty This Week: Technical Charts And More – No Room For Complacency

Last week I had suggested that we should watch the VIX and the banks for some clues on further direction. Right off the bat, on Monday, the VIX ticked up afresh. Not quite crossing previous highs but certainly getting back to near those levels. This heralded the clobbering that the market took when it began the week. Down with a gap from which it did not quite manage to recover at all through the week. Here is how the week’s trading looked on the intraday charts. The first chart shows the very high volatility that occurred. Initially, we had large swings for Monday and Tuesday. The balance three sessions showed high volatility but within small ranges. Between the two the latter is always a killer of trading practices. People generally take time to move from one direction to another. Even on a chart, it takes time to manifest. Now, if the range is not large enough, then those turns cannot be captured profitably, because by the time you identify the change and take a position, the opposite move starts. This befell traders during the week and it would certainly have been a bit of massacre..At the end of the week, the VIX remained heightened and we would have to see its levels drop below 19.5 for some semblance of trends to reappear. The first hint for that may occur if VIX closes below 21 levels early this week. But looking at the SGX Nifty over the weekend it doesn’t seem like we are going to be saved quite yet..No Support From Banks.The banks were no help either and the promise held out in the week before fizzled out with a weak start to the last week. Here is how the Bank Nifty fared during the week. As can be seen in the next chart, it moved similar to the Nifty but carried a more distinctive bearish bias. Hence the help sought from it proved futile. However, there are a couple of useful elements on this chart. It is annotated with Ichimoku and RSI indicators. Note that the prices are currently negotiating the cloud on the 60-minute chart and the cloud itself is thin and may not be difficult to cross. If that does occur, then we may see some better traction occur in the banks.Also, the RSI shows a possible range-shift action at the higher bottom (so far) formed after the Monday decline. If this pattern is not violated and the prices manage to create a breakout above the cloud, then we may have something on our hands..But for this to happen, the negativity shown by the SGX has to dissipate. Leader bank stocks have to fare better. No fresh bad news should emerge. So, lot of asks. Hence, don’t hold your breath waiting for this to happen. If it does, fine. If not, well that is fine too.Just for reference, here is the third chart, with the SGX Nifty (60-minute) with the same indicators as in the Bank Nifty chart. Here too the Ichimoku clouds are thin and crossable. But the RSI doesn’t show any intent towards turning bullish. So it does seem like a tough ask..Nifty Support Levels.The sharp dip on Monday threatened to take out the stops and that would have occurred if the market stayed down during the week. But the immediate recovery on Tuesday perhaps indicates that the bulls are not giving up without a fight. No doubt, they were unable to take the market higher and the danger of a decline still persists. Last week I had written, if Nifty were to fall beneath 17,270 in the week ahead we may see some continuation towards the pitchfork support. To stay aloft and give the bulls a better shot at moving markets higher, the Nifty needs to be pushed and held above 17,500. We had a sharp dip and in the return leg prices were unable to move past 17,500..The limited moves of the week meant that the pitchfork channel support continues at sub-17,000 levels..The fourth chart is an updated Nifty spot daily chart but with a Fibonacci projection added. It can be noted that the down leg of Feb. 2 to Feb. 14 was about 0.618 of the first leg down from the October 2021 high. This can be typical of a triangle formation..But if the prices drop beneath last week's low at 16,850 area, then we may be heading for a level even below the Dec. 20, 2021 low where we can seek a larger WXY complex Elliot Wave corrective pattern to complete..Hence it may be prudent to continue to maintain a stop nearby, perhaps below last week's low for more active traders..The problem is that the current set of problems is not going away. The Russia-United States standoff over Ukraine continues. Oil refuses to give up its ground. Geopolitics has driven gold to a new swing high and the former highs of June 2021 are being reached. The fear factor has emerged as one driver of sentiments, something that had been missing for a long time. When fear appears, risk-off is the dominant action of all players. Locally, the state elections don’t seem to be a cakewalk for the Bharatiya Janata Party as they used to be in the past. Uttar Pradesh will be key in governing sentiments ahead. But that is on March 10, so still a couple of weeks away. Until then, perhaps, this volatility may continue. With a slight downside bias developing, the market seems to be readying itself for a not-so-good performance by the BJP across the states. In that light, the pitchfork support takes on greater importance as a stop.In last week's column, I had also spoken of the ratio chart of the Bank Nifty versus the Nifty 50. It was seeming like the banks would give it a bit of a charge. But here is the update on that chart, in the next chart. We can note that the rally in the ratio chart rose to the 78.6% retracement level and then fizzled out. Disappointing for bank players but more importantly, the one sector that could take the market higher (because of wide participation and influence) seems to be faltering..So, what is going to rescue the market from further declines? At the moment, it seems that only overseas market signals can do the trick. Either the U.S. Federal Reserve has to say or do something, or oil prices have to fall away sharply, or the Ukraine situation has to get resolved quickly. Barring any of these, we are looking at the bears continuing to hold sway over the short term..Midcap Index Decay.One more worrying factor for the trends is the slight but consistent decay visible in the Midcap index..The sixth chart shows this. I have used the Heiken Ashi candles to plot the chart to show the consistency in trends. Prices broke the support trendline around November 2021 and ever since the rising attempts have all been held down by the same trendline.The bottoms are getting violated a wee bit and then there is a pullback. But the bounces are getting progressively lighter. So, one is in a quandary here... do we take the minor violation of prior bottoms as strength or do we take the reducing strength of the bounces thereafter as a sign of weakness? I would want to answer that question at this juncture by saying that we should go for consistency of the pattern and that is lower tops with lower bottoms. .So let's go with the presumption, until proved otherwise, that the big boom in mid- and small-caps (where the pattern is very similar too) is done for now and we may, at best, see some consolidations in the good stocks while the weak ones (that had rallied with the market) will start dropping sharper. So momentum investors may please take note of this and change their strategy suitably..Watch Nifty Alpha 50.One final chart before we wind up for this week. This is the Nifty Alpha 50, an index I track for knowing high momentum stocks that are usually arbiters of the sentiment. This seventh chart shows the same..Look at the glorious uptrend in this one. Again, using Heiken Ashi candles instead of the normal ones to bring out the consistency in the sentiment. The main trendline is not yet broken. So, there is some hope yet? Can the market manage to pull it off yet another time? Watch this space because it contains the names where active investing happens. If they start slipping further (meaning, this trendline breaks), then it is perhaps wiser to shed some of the bullishness we have been carrying for the past two years..The immediate outlook for the coming week or two doesn’t appear to be strong enough to reverse the trends much. At best, some rallies. More pertinent is to be alert for declines because there is room beneath. No room for complacence is the message..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 BloombergQuint or its editorial team.

Nifty This Week: Technical Charts And More – No Room For Complacency

Limited factors can rescue Indian markets. Or else, bears will continue to hold sway, writes CK Narayan.

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