Nifty In Technical Charts: Expecting A Rally For Next Week

After all the huffing and puffing over the past few weeks, the market finally settled lower for both Nifty and Bank Nifty. The sentiment, going away for the week, was a negative one. The indices fell on all days of the week and the gap-up move of Friday just got sold into as well. The pace was slow and volumes lower and progressively, traders chose to withdraw from action as money making became increasingly difficult.

On the daily charts, prices are down now to the levels seen on the budget day. It is quite remarkable that the low made at the start of the month is still holding.

To know where we are and where are going in the future, it is worth doing a recap on how we got here. I would like to revisit the various letters over the last month or so. Starting with Jan. 21 letter, I had asked ‘Can a trend emerge now?’ and answered the question by stating that we can even have a downside resolution. The Hindenburg grenade was the one that burst and took markets down. This brought prices down to a level where I suggested in the letter of Jan. 28 to ‘Take some profits’. The reference was to shorts of course and the market made a low by Jan. 30. In the letter I had stated that Jan. 31 would be a positive day (it was) and that this time around the budget was a less discounted item and, hence, warned of some larger response. The budget day turned out to be quite a volatile day, with the low being recorded there. I had stated that  prices would remain range bound from 17,500-18,200 until Feb. 16 and that was precisely so, with the market turning down from Feb. 16.

The main point was that it was time to take profits on shorts and the price range and precise turn dates would have enabled readers to take the appropriate action.

In the last week letter, titled ‘No specific signals seen’, I had called upon readers to be alert for winning on trades. This letter defined the higher possibilities for the Nifty at 18,400-18,450 levels. But the rally attempt fizzled out. The 17,400 lows did not appear to be a strong one and I opined that it may be tested or even broken. It has now come in for a retest in the week just ended. A subdued and limited approach was advocated and that would have proved best if followed.

So, now we have had a down move signalled, lows tracked for short covering (if any), looking for higher bottom formation, given price levels (met and respected by market) as well as given precise turn dates where trends met with changes. We have come down to supports that have not established themselves to be strong (yet) but may do so as some External Fibonacci relationships have been reached. See chart 1. For this to work, prices have to stage a revival almost immediately. Even if prices dip some, they should quickly recover from such dips. Hence, the market may probably revive after some weakness on Monday this week.

Looking at time counts for March, I find that there is a bullish bias for the trends till around March 6. The price levels for coming week will need to move past 17,600 for uptrends to take hold. On the lower side, a tripping of 17,320 would be a signal that market wants to record its low first and only then attempt rallies. Note that the levels are both a bit off from the last close and, hence, I am giving a window for the market to breathe if it still wants to spend time ranging. At such times we need establish that any breakout (up or down) happens with some intent to carry on. So do look for some breadth and volume signals in case a breakout move occurs.

How far can it move if a breakout does occur? Upside resistance range is 17,750-18,000 area. On the downside it would be 17,180-16,900. I expect the lower levels to occur only in the later part of March (owing to some other Time cycles playing out) but you never know for sure with markets and, hence, it is better to be prepared.

Chart 2 shows the Ichimoku set-up and we note here that the Chikou span had warned us right at the start of the last week that matters would start turning weaker. If rallies occur now, this chart shows us that the max extent could be 17,840 or lesser. The chart also shows that the Nifty could see a relatively smoother move up for a maximum of about five sessions (essentially, the coming week) after which it will once again slip into some consolidation. So, that is a small window only for bulls. If prices go lower, then there is really not much by way of any resistance and hence one should be on the lookout for any bad news that can drive markets lower and act on them if any appear. But with seven successive red candles on the daily charts, I would very much doubt that the trends will plunge lower without some kind of rally.  

The Bank Nifty these days seems to have lost its ability to lead the trends and hence its trends may follow in the wake of Nifty trends. In the last week letter, I spoke about capital goods and auto as sectors to watch for some stock action. These continue to be the case. But, by and large, the moves are expected to become stock-specific based on news flow. Like, for example, GNFC, which I feel could become a stock for the March series as the news flow of TDI plant closure of BASF should impact it in a positive way. It is not a momentum stock and may move in fits and jerks; that is why I am saying that one may need to look at it over the next couple of weeks. Other such stock plays may also emerge and one needs to be on the watch for the same.

Summing up, expect trends to get into a limited rally in the week ahead. So any further dip may see buyers coming in. Avoid looking for sustained moves in stocks too. Take the money when you see some.

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.