Nifty In Technical Charts: Relief Rally?

Consider this as a relief rally only and protect long positions or views with a stop below the key levels mentioned above.
Index graphs run across a computer screen on the investment floor. (Photographer: Jason Alden/Bloomberg News)
Index graphs run across a computer screen on the investment floor. (Photographer: Jason Alden/Bloomberg News)

The situation was a bit mixed across the week with Bank Nifty faring better than the Nifty. Traders would have been happy about that, as that index is the more favourite trading vehicle. The finish was good for Friday, with power drives by both indices to highs that ignited some sentiment sparks and, of course, hopes of continuation in the week ahead. Chart 1 this week is the Bank Nifty, as it portrays the trader sentiment better than the Nifty. A weekly column has to, necessarily, address the shorter term and hence the focus on Bank Nifty.

Of particular note is the fact that the Bank Nifty had already signalled some intent on last Friday when it opened gap-up but could not sustain that into the close. Nevertheless, the gap zone was held and then prices in the week ended, just built on that show of strength and Friday, the bulls just ran away with it! The Nifty was a lot more subdued and range bound and found its feet only by Friday. So, we should continue to look at the Banks to provide the cues in the coming week as well.

When the market fell headlong on Tuesday, it seemed like the bulls had thrown in the towel. Players, already unnerved by their lack of success over the months, now started listening to those commentaries that shouted out much lower levels. There were enough reasons all right—India was relatively expensive to other EMs and, hence, the selling by the FPIs would continue; the fixed income instruments had started yielding close to 8% and this was thought of as a death-knell for equities; the bond yields in the U.S. also shot past the 4% levels, continuing to raise the specter of more rate hikes there.

But overlooking a simple fact was that the Nifty had become quite oversold! With the Nifty chart showing nine successive red candles, it was only a matter of time before a rally emerged. Call it an oversold pop, or a dead-cat bounce or what you will, a rally still remains a rally. And so it was. Just as the doomsayers were leaning back to witness more declines, the market turned around and huffed and puffed its way to finish the week in the green. Granted, the effort produced only a 112-point gain, which, compared to the 391-point loss of the earlier week, seems quite limited. But the main point is that the market did not continue lower when most people were expecting that it would. That can be said to be a change in sentiment.  Chart 2 shows the set up of Nifty.

While the banks pitched in to save the day, I find that Friday’s price action was repeated across many, many sector indices too. The best of the pack was Realty, which showed a rise on all five sessions of the week. See chart 3.

Does this mean the realty stocks may continue to be in demand? I have no idea if they will. All I can state is that the rise looks like a nice power drive from a new low and that usually heralds, at least, an intermediate term rise. So, we should be looking at Infra stocks from a bullish angle in the coming week or two to spot opportunities. For those who are mistaking the Infra index to mean realty stocks, let me hasten to show the list of stocks that comprise the Infra index. You can notice that only two real estate stock features in here. See Chart 4.

Among the stocks in there, stocks like Tata Power, God Prop, Gail seem closely allied with the index trends while the cement stocks are taking a hit (exception being ACC and Ambuja Cements). So pick and choose carefully.

Next week has a holiday on Tuesday so the FinNifty expiry would be on Tuesday. These days the volumes here have picked up smartly and since banks dominate here too, we see some moves in private banks. All top names figure prominently (HDFC, ICICI, SBI, Kotak and Axis) and, hence, expect those to be in good action on Monday. All of them have traded well last week and closed strong. So expect continuation. The other NBFC and insurance stocks will chip in a bit as well.

Let’s get back to the Nifty and Bank Nifty and check their prospects for the week ahead. The next set of resistances on the charts is placed at 17,750-17,885 and if it has to occur, this should be seen early in the coming week. We know that the Bank Nifty packs the punch to push the Nifty higher if it continues upward in the coming week. But the momentum readings on the BNF chart seem a bit iffy and we may need to see them improve in order that any rise may have support of momentum. As can be seen in the daily chart, both the DMI and the Stoch RSI are somewhat neutral as yet. So, upward price action from the banks is a must for gains in the coming week.

Time counts for March indicate it to be a less volatile month compared to February. But the first bullish streak ends by around 7-8. Readers may consider a bullish bias for the first two days of the week and look to exit from long index trading positions at higher levels. The Bank Nifty point of 41,050 needs to be watched and if this is lost, then bullishness will wane. The similar level for Nifty is pegged at 17,350. These levels are valid all through the week. So, for the week ahead, consider the ongoing as a relief rally only and protect long positions or views with a stop below the key levels mentioned above.   

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.


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