Nifty In Technical Charts: Better Times Around The Corner Now

One day of breakout (Monday) and then... nothing for the rest of the week. But Friday, the market was forced up, as it could not ignore the good news in the form of the stupendous mandate in Bihar. See chart 1.

Could that be considered a breakout of a breakout? Monday and then Friday. This is one of the patterns of Gann price action. If it works out, then we should have a good week ahead and even beyond.

Even the momentum is keeping pace with the price action, supporting it as it goes, despite, what seemed like a dull week. Some move upward in prices now will ensure a push of the RSI into the breakout zone and that could lead to better times.

We have been waiting for up moves since the last couple of issues. Well, we got it and now on Friday, market is signalling further gains ahead.

Triggers? The Bihar election can certainly be a lingering one. It was such a resounding win that the opposition may take time to recoup. As usual, Rahul Gandhi was nowhere to be found after the 95^th defeat of the Congress under his stewardship! The Q2 results have been decent and now there is an expectation that is getting built that Q3 shall be even better. Inflation print came in very low. Expectations of rate cut in December are going up now. And of course, the long-delayed trade deal with the US and reduction of the tariffs to more manageable levels.

Help is coming through from Banks, especially PSU banks. The Bank Nifty and the PSU bank index are both pushing into new highs. They have been the best performers over a month, moving around 10% higher, this being much larger compared to other sectors. On a three-month basis, they have gained around 18% making them one of the top gainers of the market. If you didn’t play this side of the market in recent times, you would have probably found the going tough. The moral of the story is, find the sector that has tailwind in the market and participate in it.

Among the stocks in PSU banks, Bank of India had the best monthly return at 18% followed by Canara Bank at 16% and Indian Bank at 13%. This is also a lesson that we should not, as a default go to the top name in trading but we should, instead, check out the most trended names. The top gun of PSU banks is SBI and that could chip in with only a 10% gain, while other popular names like BOB and PNB were lower with 8% and 6% respectively.

Privtae banks are lagging the trends yet. They just produced 2% return for the month. Internally though, story is quite different when you look at it stock wise. DCB had a thundering 36% in a month while CUB did 27% in a month. And here we all are, focusing on HDFC Bank (1.8% for the month) and ICICI Bank (-0.8% for the month)! Chart 2.

There is news flow in PSU banks of likely consolidation ahead and the chart set up suggests that there shall be continued advances here.

Defence stocks were up 4.1% for the week on reports of large order receipts and some results. This is one of the sectors that has a large buy-in from institutional investors, as multi quarter visibility of earnings is available. Of course, everyone is assuming that execution shall happen. The chart is not appearing too enthused though and so I wouldn’t advise chasing any of the names here. But MTAR Tech, 23% gain in a month, presents some interesting possibilities for the long side, albeit on declines.

Coming back to the Nifty in the last week I had indicated that a dip to the 25,700 regions would take support. However, as can be seen from Chart 3, the market chose to respect the gap area on the way and rallies from 25,800. Coincidentally, this was the site of the highest Put concentration. Currently, 26,000 CE is visible as a resistance zone based on current option concentration.

Will the results be good enough to propel the index past 26000, in which case we may witness some short covering activity. Last week reveals a mild short covering by the FII on Friday that needs to extend into the coming week for short covering to become a meaningful trigger for a rise. It should be noted that an NDA victory at the polls was not unexpected, but the size certainly was. The markets move substantially when taken by surprise but not so much when the news is already expected and priced in. This could possibly explain the limited upside price action that one saw on Friday.

However, the market has set off yet again on an upward path and as we have been discussing over the past few weeks the path of upward resistance is the least. It is now possible that if the Nifty were to climb past 26,000, it can scale all the way till 26,500, which would then put Nifty into a new high territory.

That is something to look forward to in the coming week or two. The next turn date is seen for November 21. Maybe that is too early to print a new high? So, will there be yet another attempt to gather strength with a minor dip and then attempt a strong push that may produce a new high by December.

I leave you with this happy thought for this week. As averred earlier, we are still very much in the Buy the Dip market and in case there are dips in the market due to any reason, they shall continue to remain buying opportunity.

Within stocks and sectors, one should be looking at the best trended performer, rather than, by default, go towards the top names as explained in the discussion above on the banking sector. Readers who are members of my NeoTrader family will have the advantage of knowing where the best trending action is occurring. The others may have to spot it on their charts. 

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 in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.