This is what last week's column closed with: “Prices have moved along some but not much. Hence the stop may have to stay in that zone yet. The gap zones at the 16,800-17,000 area would provide the first of the dip-buy area in the week ahead.”
To the prepared go the spoils.
Those that were ready to buy the dips into the support zone benefited as the Nifty dropped right near 17,000 and then began a move higher that continued all through the week, finishing in pretty good style. We saw gains being made through two successive gaps. The rollover indicated that people paid slightly higher roll costs to push their longs and that boosted the sentiment some. The rest of the fuel was provided by the war news retreating into the background and oil prices receding.
A nice move of around 4% for the week certainly had the sentiment juices flowing as evident in the positive tones in various Whatsapp and Telegram group messages. Here is a shot of how the week’s intraday action looked. A shaky start, some gaps but with consolidation intraday raising doubts about continuity and then a robust finish.
Gaps create gains but if they are followed by intraday consolidations then that creates problems for traders. These days the margin stuff has become stiff and brokers are largely unyielding, and hence many are forced to cut their positions at the end of the day.
So, while there may be a nice gain for the week, traders would have been able to squeak through some decent gains only on Friday perhaps. The best market to make money is one that moves in a linear fashion, allowing everyone to get in and get out at their convenience!
But traders have short memories. All they will remember is that the week started well and ended well. Also, their favorite index, the Bank Nifty managed to fare better this week and actually was tradable for a change with controlled volatility and sufficient linearity to the moves. See the next chart for intra-week moves on the Bank Nifty. It has been a while since Bank Nifty traders were able to sink their teeth into some profits.
So, now that we have had a big dip (into March lows) and a decent rally from there, it is time to take stock of the weekly charts and see where we are in the larger scheme of things, which this third chart does.
We have the weekly chart with Ichimoku cloud presenting support to the March dip. Nice revival with a bullish engulfing candle there and good follow-through price action that has now carried above the 62% retracement of the fall from the October 2021 high, signaling some bullish intent continues.
Not shown on the chart but a finding nevertheless is that a declining Andrews pitchfork channel has been broken out to the upside. This too adds to the bullishness.
Slightly dampening the bullish fervor here is the limp readings of the oscillators. The RSI is seen recovering from the outer bounds of bullishness’ lower limits and yet to get into a stride while the DMI lines are all clustered up near the neutral zone, indicating that matters are yet to turn strong. These are being validated by the positioning of the Chikou span line on the price chart which shows it may require some work before it can get free of resistance.
Given that backdrop, one can participate, rather, continue to participate, since we are already in a bullish mode for a couple of weeks now, while still maintaining a trailing stop.
In the last week, I had mentioned a target of 17,520 and after a wee bit of struggle near that level, it has been surpassed comfortably on Friday. The next target zone is seen at 18,050 levels and we can look forward to those areas in the coming week. We should be looking for the oscillators to improve further during such a continuation of the advance and that can enable it to continue or persist. One can raise the stop to 17,000 levels and continue to hold long. If markets go higher, the trailing stop can be improved up to 17,300 levels during the week.
Having addressed the positive possibilities, let’s now look also at what can negate those views. Obviously, there's always some bad news that has to break and the only thing we can think of is the resurgence of war-related news. As stated earlier, this matter had got pushed into the background and people have become slightly complacent about it too. Can’t really spot anything local though, so it may have to emerge from overseas. The fourth chart shows the daily Nifty with Ichimoku and it can be noted that the cloud ahead is reasonably thick below the prices, meaning, it can provide a good cushion during declines. A gray rectangle is marked on the chart and this designates the ‘flatlands’ in the Senkou B span which typically function as good supports in case prices were to dip during the week.
Therefore strong dips are unlikely and would most likely get bought into. If one observes closely, there is also a Kumo cross signal as of Friday and that too heralds continuation in case the prices continue higher. So, for the week ahead, we are looking for continuing the long positions created earlier and expecting the Nifty to rise to 18,000 levels now. We have raised the stop loss from 16,500 earlier now to 17,000 levels and if required, can raise it up to 17,300 too, to ensure we protect the profits that have accrued. Intra-week dips can also be used to buy with the same stop levels as given above.
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.
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