Nifty In Technical Charts: Ready For Another Upward Thrust

The forecast given in earlier letters turned out to be quite in line with the way the markets have behaved. I had stated that we should reach about 18,450, and the market hit 18,473. I had stated that the market could undergo a short-term reaction from May 15 onwards, and the top was made on the 15th, and since then the market has slid a bit. So, that was something readers could take advantage of, and I trust that they did so.

On the intraday charts, we note the consistency of the down move through the week in the Nifty. Nothing very aggressive, but persistent all the same. But recovery towards the end of the day has restored some hope on the Nifty chart. However, the same was not reflected in the chart of the Bank Nifty, and here, the moves were more ranged than declining. So, the two indices behaved in a slightly different fashion during the week. The Bank Nifty is always more representative of the speculator mindset, and hence this just proved the earlier forecast that we may witness only a limited decline and that too was to be bought into. Chart 1 shows the intra-week trading pattern in the Bank Nifty.

In the earlier article, I had further stated that the trends would revive upward on May 23, and that is now awaited. This was based on the earlier write-ups on time cycles (please check the earlier articles for details on this). I had also suggested that the end-of-week dip could be used to buy again. For fresh purchases made (if any), the nearest stops that can be kept are the swing lows of 18,085 and 43,470 on a closing basis. Considering that the bottoms on both the Nifty and Bank Nifty were 45-bar affairs (on 30-minute charts), the lows should function as good supports and stops.

Note that the Bank Nifty chart has made two higher bottoms already, and if there is any dip on Monday that makes a third higher bottom on intraday charts, then it would be a good set-up for a renewed drive higher. The key level that the Bank Nifty has to close above is 44,125. It almost achieved it last week but fell off in the attempt. Fresh buys for a three- to six-day run can ensue if this level is regained by the Bank Nifty futures next week.

I am not stating the same case for Nifty because such a trigger is still far away. Here I can allow for a pullback till around 17,900 without disturbing the trend much, so swing traders can probably keep their stops beneath those levels rather than the aggressive stop mentioned above.

For the Nifty, take a look at chart 2, showing daily candles with modified Gann angles using Jenkins methods. Here, I find that the current rally high was made on a precisely calculated slope for the angle.

A move past 18,400 will create a fresh breakout higher for the Nifty and enable it to continue further. The support angle, as can be seen in the chart, is a good distance away, and hence the market is in no danger of turning strongly bearish in the immediate future.

Let's take a look at the oscillator set-up. In earlier letters, I had mentioned the lack of divergence, which finally managed to catch up with the trends at recent highs and produced a pullback. Chart 3 shows this on the 75-minute chart. It can be noted that the Rsi has already pulled back into oversold territory with the week’s decline, and a class 2 type divergence is now set up at the bottom as well.

So, now we have to look out for a breakout higher that is also accompanied by a revival in the RSI readings on this chart in the coming week. That will confirm the intent to push higher.

What of the bigger cycle I had spoken about in earlier letters—about declines in June? Well, that remains intact, and so the next leg of the rally higher would actually be a profit-taking one, and hence we have to modify our positioning suitably. For those uninitiated in the ways of trading, this would involve tightening stops if you have pending longs; it would involve reducing quantity to be taken in fresh long positions; and it would also involve setting up failure standards on our charts, particularly 60- or 75-minute charts for tracking the market.

Trading may appear to be simple, but it really is not. It involves paying attention to a lot of detail and being prepared for scenarios that the market could play out. As I am often fond of quoting Robert Miner, trade the market, not your forecast! So far, our forecasts have kept us on the right side of the market trend, and we have no reason to suspect that it may not do so further.

If the Nifty is successful in moving higher, it will create room for 18,600–720 levels ahead. The Bank Nifty could aim to reach around 45,300 levels. Chart 3 shows a projection for the price and time window on the Bank Nifty chart, signalling the possibility of an upmove lasting till June 1.

So, right now, we are at yet another short-term turning point, even as the longer-term move remains up. Hence, the play to make is long, but now with some caveats as larger time cycles are about to kick in soon. So, enjoy the ride up and get ready to short when we get the signal to do so. Not before.

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.