Nifty This Week In Technical Charts: A Sigh Of Relief... But For How Long?

We are currently racing through some unbelievable scenario. Post the minor hiccups the sharp rise that has emerged last week has pushed us to evaluate new higher levels. A highly volatile market forced us to be quite selective in every sector. While global cues shall dictate the sector rotation we will discover some stock-specific. Result season has provided the much needed fuel to the sentiment as well.

After attempting to stage a breakout, Nifty finally flashed a new high. Bank Nifty had clearly stated its intention right at the start of November thus keeping the bullish flag flying thereby ensuring that the trends in Nifty does not give up. Though broader indices are firmly in control, the midcap index is still figuring out what should be done next as a plan of action. Positive trends are triggering some bullish possibilities leading us to adopt a discretionary approach as the global cues will have its share of interference to decide the future course of action.

Some major contributions to the bullish sentiment sustaining has been the constant decline in crude oil prices that we are witnessing in the last three months that have helped to arrest the decline in the markets. The corresponding impact was already seen in Q2 numbers this helping the bullish sentiment to stay alive. The dollar-rupee weakening seems to be stalling now as the combined effect of the slowing down of commodity price rise and the stand taken by Federal Reserve to shift to smaller rate hikes last week does lend some comfort to the market sentiment. The debate on the concern over the impact rate increases could have on financial stability and the economy in the U.S. is forcing them to reconsider their hawkish stand.

If you recall last week I had mentioned, “…. It is therefore obvious that retail money needs to come back big time for the markets to get into a bullish stride once again.” Another redeeming factor has been the slow but steady recovery in the midcap space that was missing for a while. While we need to really see more momentum kicking in to take these indices higher, the trends seen last week has lent some color to the sentiment. Mid-cap index is closer to the breakout zone and should be checked first for some market action.

When the market began the week, it didn’t really look like it would take off as it did but market really got into a stride on the last day of the monthly expiry and didn’t stop right into Friday. There was some bearishness built into the options side on Monday and it seems like the professionals got into the act around the lows of Tuesday morning and didn’t let go. Chart 1 shows the moves over the week.

Trends were helped by sudden turnaround and the huge gap-up that emerged on Friday to give a strong push to the bullish momentum. It was evident that the market had got reconciled to the Fed meet and once the event was past us, the pent-up demand was released and shorts were squeezed as prices moved higher. Friday was more of a flat day but the important thing is that the indices held their levels. Evidently, sellers were unwilling or buyers were still around. Both of these are good news for some continuation of the trend.

It was largely owing to option trader activity that the prices jumped much. That and the fact that the Fed did not spring any surprises. The PCR, which has now moved above 1 after many days suggesting that the trends in Nifty shifting to the upside. The OI positions kept the PCR suppressed below 1 for a couple of days as the high levels saw profit taking by earlier bulls and bolder bears came out of their caves, expecting global volatility to increase with the Fed and other events. Sensing an opportunity, the smart set seized it and a sharp spate of short covering occurred. At the turn of the monthly expiry, too, we found that the overall OI was quite low as retail trade too had let go of much of their positions and despite the higher index levels, the positions were actually quite light.

Prices are clear of the cloud and more importantly, the CS line too is cleared it. TS-KS line are also far away now and could now act as a support as we head into the week. In the earlier article we had mentioned about the Kumo cross and how that held out for some more gains. Well, we got it now. The two indicators are in good form with the ADX line too on the rise now and the RSI in fine form with a comfortable move above 60 levels highlight that any minor dip are worth buying into. This would be around 18500-600 area where the max pain point of the Option data suggests.

The other sector that one could now look into is auto that went into slumber and is now showing some good form. But the stronger move came from IT sector index as it has been rallying and is now on the verge of punching to new highs. Much thanks is due to the move in IT large caps after a while and some overall up moves in many names from the sector. So, perhaps there could be some action still left in that sector for the week ahead.

Good recovery has been seen in the banking area and this is important for the Nifty too as bulk of the weight is still coming from there. PSU banks were in good form and the trend continues to extend, we may see some further push to PSU banks. Results from private banks were ok but market has not been too kind. They need to move too for the Bank Nifty to get cracking and the effort from PSU space may soon start tiring out. While we wait for that nudge from private banks the other associated sectors like auto, realty and financial services have begun to show some action. The trends are now looking at these sectors now for some cues in the week ahead.

The weekly chart attached below shows the Bank Nifty poking above the resistance zones on the weekly chart. We need the trends to flourish further for the momentum to signal the onset of further bullishness. The median line that had been posing threat to the bullish sentiment has now being overcome. The long body candle closing is definitely an encouraging sign as we head into the December series. While immediate targets are emerging around 44,800 based on the mini pitchfork drawn from March lows supports emerge around 42,000 in case of declines. A multiweek higher targets that we can expect is around 50,000 within next few months.

So, we are gearing up for an interesting week ahead. Sector-specific action could emerge as has been the trends in the last few days. Global cues continue to remain mixed and that as a result should play a part in keeping the momentum alive. The view continues to be upward biased and hence look to be buyers on intra-week dips.

CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise, and NeoTrader; and chief investment officer of Plus Delta Portfolios.

Raja Venkatraman is co-founder of NeoTrader.

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.