Nifty In Technical Charts: Can A Trend Emerge Now?
When markets remain in the same range for four weeks running, there isn’t much different that one can say about it. We must also avoid over analysis because there will then be a tendency to find factors to fit a certain argument or viewpoint and this can always lead to unwanted complications. Mainly because once the mind has bent to one side, it becomes difficult for the mind to accept information to the contrary.
The Bank Nifty’s performance vis-à-vis the Nifty remained a bit sub-par although no alarm bells of any kind went up. During the week the Nifty began well but swiftly gave up pretenses of wanting to pull into some uptrend by early Tuesday. After that it was left to some end of week rally to restore some sort of respectability. During the rally too the Nifty did slightly better than the bank nifty. Hence, it is evident that the biggest influencer of the market moves—the financials—were subdued.
Chart 1 shows the moves within the week through a 30-minute duration. This time I have shown it with a CPR indicator to highlight the non-trendiness of the market.
The rally at the start of the week ran into some rising resistance lines (using Gann grids) and fizzled out pretty quickly. Breaking the CPR zone lower, the market signalled a possible decline towards the lower grid line of support and this occurred by the end of the week. I had tweeted about this during the week as well. The Friday rally wasn’t entirely unexpected as a four-week range had developed between 17,800 and 18,200 area and there wasn’t any factor to force the Nifty below the supports.
As can be seen in the chart, the CPR for the following week is narrower compared to the earlier week but is placed in the same range around 18050-90. The CPR acts as a magnet creating a reversal to mean type of price action if triggers are absent. So, we will need some definite news triggers for the Nifty to move out of its current ranging. I have mentioned this earlier as well but it bears repeating—be on the back foot in your play until some trend emerges. You really cannot force the market to give you profits. A narrower CPR is easier to surpass and, therefore, after four weeks of ranging, we should probably be on the lookout for some trends to appear in the coming week or two.
So, it would behoove us to look for what can create such a breakout either up or down. First, would be to check status of the financials. Chart 2 shows Bank Nifty weekly. Overlaid on this chart is a close-up of the move in Nifty for comparison.
It can be noted that the Bank Nifty has not really dropped very much but in the same period the Nifty has seen a three red-candle fall. Usually, trends are set off when you have a succession of three candles of a color (like the Three Black Crows pattern) and this signal is not visible on the Bank Nifty (where we have one long body red candle with no follow through to that candle). Now, it is a tossup as to which of the two patterns will prevail. It, therefore, becomes evident that the low on Bank Nifty (at 41,700) is quite critical for sustenance of the uptrend. It can get pierced here and there a bit but we certainly don’t want it to be broken in any decisive manner. That will become the canary in the coalmine.
IT could be the other but the results by the majors haven’t exactly got the Street excited. So, their ability to power the Nifty to better times seems limited. Chart 3 shows the Nifty IT index (candle) together with the Nasdaq 100 chart (line) overlaid for comparison. It can be noted that the Nifty is ranging after a multi month fall while the Nasdaq is seen struggling to stave off more declines. The dollar was on a bit of an overdrive until recently but the Rupee is seen clawing back some lost ground and should hit 80 levels. Overall, therefore, nothing in here to expect any helping hand. If individual stocks come through with some better show then they may run rather than produce any sector level rally. Finally, there are far too many people looking for a rally in IT and market seldom obliges the majority’s expectations.
Can Reliance Industries and the rest of the pack from the energy sector pull a rabbit out of the hat? Maybe. Chart 4 features the Nifty Energy index and we see a triangle consolidation in progress. That leaves the jury out about the ultimate breakout. Reliance is seen consolidating in a range and some good surprise-the-market numbers would help. The refinery stocks are trying to put in some sort of a bottom and are building some slight positivity. So, a sector to keep an eye out for.
But sentiment is most influenced by what happens in the small- and mid-cap space. We need to see some rocking numbers from leaders in these two spaces to get the juices flowing again. People may see the index rising but their mood is really arbited by how well their own portfolios are faring. The charts of these two indices are neutral to down biased in the near term. So, chances are that we may have to wait for a couple of week before more results are out to see if this area can be influenced any.
So, to wrap up, no major good news. But after several weeks of ranging, there is a chance of a trend appearing. Will HDFC Bank results do the trick? Or will the market choose to wait for more big names to come out with results? After all, the last thing that the market needs is now for some negative surprises. There is very low appetite for it.
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 BQ Prime or its editorial team.