Nifty In Technical Charts: Now A Shift In Bias?

Expectations of further declines to emerge were happily belied in the truncated week. Beginning with a gap down on Tuesday, the markets managed to recover, stage a mild rally before some strong profit-taking on Thursday eroded around 38.2% of the advance. Recovery was attributable to some strength in the U.S. markets but overall, the inability of the market to go down, even when offered an opportunity should still be considered as a positive. In last week's letter, we had already hinted that rallies if any will emerge from overseas trigger.

The fear that dollar strength might lead to Nifty weakness were also belied right from Monday of last week as we find that dollar weakness, instead set in. Chart 1 shows USD-INR action of the last week.

But the danger does not appear to be thwarted yet as there is only a 62% retracement of the nearest leg of the dollar and until the pair breaks below 83. This is something to bear in mind in the weeks ahead. The RBI policy is also scheduled for next week.

As can be observed from Chart 2 (daily Bank Nifty), the Ichimoku lines have turned positive even with the limited trades of the last week. Not only have the prices rebounded up with a gap from the cloud, but also succeeded in crossing the TS and KS lines. In addition, CS line, too, is well-positioned for bringing in fresh strength if the market is willing to make it. The last Kumo shadow is at 48,340 and this is the target price that needs to be exceeded for strength to be established by the Bank Nifty in the week ahead. Alongside 47,150 can be kept as buy-dip zone for the index for the week. Option position in Bank Nifty starts the monthly series with highest call written at 48,000 and Put concentration is seen at 47,000 strikes.

In last week's letter, we had indicated warning signal issues by the Heikin Ashi chart of Nifty (Chart 3). Last week's action shows no intent of follow-through and has actually depicted a possible reversal, with the print of a small body green candle. It is notable that the support of the TS line has continued to hold and if uptrends were to emerge from here, then such a signal would be a high positive for the Nifty. However, we do need some emergence of a directional Heikin Ashi candle from this set-up before we can draw further conclusion regarding the trend.

On the options front, large shorts exist in the April series at 22,500. If the market were to be on a stronger wicket (given that April Nifty Future is already at 22,452), then crossing of this call option resistance area may induce fresh uptrends. It is pertinent to note that the all-time high of the Nifty Spot is at 22,525 and overhauling of this with some force should bring in new upward momentum.

Thus, we see that for the weeks ahead, the Bank Nifty is already primed for some possible gains, while the Nifty is quite close to creating all-time new highs. Both these factors should be kept in mind by the traders for the week ahead, and until lower levels on the indices are not triggered the default trading approach should be bullish. News flow should be looked at from such an angle, while index heavyweights should also be tracked for cues about upside possibilities.

In the last week, we were looking for gains to accrue in the auto space and IT to turn weaker. Both of these expectations turned out correctly. We would reckon continued weakness in IT names in the week ahead as well.

After spending the last two months in consolidation, the Nifty Consumption Index (Chart 4) has staged a breakout last week indicating that there is some newfound bullishness. This index has some prominent names from FMCG, auto spaces and these names are in the limelight correctly. Looking at the charts, it does seem that the bullishness ought to continue. So, this could be a focus area in the coming week.

Summing up, both indices are in with a chance for a move higher. It remains to be seen whether the market shall grab this opportunity. In the last week, as mentioned earlier, the market refused an invitation to go lower. A refusal once again, to take up the bullish opportunity now offered would be an indication for continuing the range-bound but volatile action.

Hence, we continue at an inflection point for the rends. News flow at this juncture will be a critical input. The quarterly results still have about two weeks more before they start flowing. It is possible that the market may bide its time, consolidating some more while seeking out valid reasons to rally. Overall, one may continue to maintain a buy-on-dip policy for trading. Investors still have no cause for worry and opportunities if any created out of sudden market dips should be used as fresh entry/re-entries into preferred stocks.

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 NDTV Profit or its editorial team.