Nifty In Technical Charts: Short-Lived Reaction Possible

So far, market trends are playing along expected lines. The upward tempo was expected to continue, and it did. Beginning with a bang on last Monday, the Nifty did eke out some more gains, but not too much. The Nifty futures have almost reached the next target zone, near 18,400.

In the last letter, I had written that the first of the targets had been met but had suggested that the trends look good enough to continue towards 18,450. The progress of the Nifty through the week can be seen in Chart 1.

It can be noted that, after a rigorous start, the Nifty was more into ranging for the balance of the week. This is also quite in line with the expectations that the market in May would range, albeit at a higher level. So far, that is the case.

Chart 2 gives an updated picture of the ranging that was mentioned in the prior week's letter as well. Note how the weekly ranges are building up one on top of the other. This is typical in a market that is still driven by the bulls.

On the daily chart, these appear as a series of small body candles following some strong bullish candles, so continue to confirm the bullish status.

Chart 3 shows the same along with the main support trendline using Gann angles.

This has now improved higher towards 17,600 (from 17,500 earlier), and that is the nearest stop that swing traders may keep on their long Nifty positions.

Ideally, those that have been following the analysis in these columns have been advised to go long at the end of March (Nifty 17,000), with an expectation of 18,050 by end-April; this target was further revised to 18,450 by the end of May, and therefore, they should be holding long positions.

Obviously, some profit would have been booked along the way, but I trust some core long positions should have been maintained, as time cycle analysis was used to project a bullish time lasting till the last week of May. It is only in June that pullbacks have been indicated. The letter from a couple of weeks ago suggested that long positions should be held till May and that only in June should one consider shorting. Thus, one should have been awarded with 1,000–1,400 point move on the Nifty so far (and counting).

When playing the market using such an approach, it is always prudent to keep the stops at a safe distance so that ‘normal’ market volatility doesn’t get us out of positions quickly. But for those who find this level a bit too far (i.e., giving up a good chunk of what has been gained), they can adopt other stop-loss methods such as a near-term moving average, a P-Sar, or a supertrend. These can help lock in more of the gains.

Using other Gann methods, I can work out a nearer stop-loss level at 17,950, where some geometric points meet, and this is also the site of a former gap zone.

Chart 4 has some details of the Gann analysis that also indicate the next important low to come out around the time window of June 16–20.

Armed with these, I guess readers can plan their campaign in the market. In the last letter, I also indicated that the time window between May 15-20 may provide some weakness, and that is set for next week. So, be a bit wary of declines that may begin early next week and last up to Friday. I expect trends to turn up on May 23 and stay up till the end of the month.

One of the ways this down cycle can be avoided for the next week is if the Bank Nifty stays strong. It has given a good signal as of Friday, regaining an important price level that may now drive the prices of the BN Future towards 44,100 levels. The trends here can then stay strong till May 19. This places the trends of the two indices at loggerheads. It is possible that the two can make independent moves, but it is unusual for the two to travel opposite each other for several days. Since Bank Nifty is the more heavily traded index, I may want to bet with it in case of advances. But if Bank Nifty trends align with the Nifty (i.e., it too goes down, failing to capitalise on the Friday move), then we should have a quick and sharp decline in the next week.

So, most certainly, this is a week to be on alert for some action for certain in the indices. Now, how much of this will translate into stock action is a guess. I wouldn’t want to hazard that. There, I would prefer to go with the bigger trend and look to be a buyer towards the end of next week.

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 BQ Prime or its editorial team.