Nifty In Technical Charts: Time To Shed Tentativeness

Bears were expected to continue their work in the week and they almost did. Until Friday, that is. The strong rally that emerged, seemingly out of nowhere, restored some confidence among traders and have raised the sentiment meter by some. Is that enough? Can the bears now take a step back, seeing the strong comeback on Friday? That is the real question.The elements were there towards the end of the last week, particularly in the derivatives segment. The single stock futures open interest had hit the skids and the figures were the lowest in a year or more. This is the biggest sentiment arbiter in the market. If traders are not stepping forward to take up positions in stock futures, then it is safe to conclude that the bulls have been vanquished. The more telling evidence was in the FPI position in the indices. Their long versus short ratio was running at an abysmal 1:10 and that too was at an all-time low! This, more than anything, set the stage for some recovery work. The ultra short time cycles were showing up April 1 as a strong up day. But it was a Saturday and hence the job fell upon the March 31. And the day responded superbly, with a big gain posting, highest probably in the last few months! The momentum readings were in oversold. A perfect set up for a rally.The prices climbed sharp on Friday and the futures open interest shed substantially in Nifty and decently in Bank Nifty. Clear evidence of a short-covering based rally. The put-call ratio on the monthly series shot up in both Nifty and Bank Nifty as put shorting came in aggressively. Lots more of this action left, by the looks of things. So expect the truncated week ahead also to provide sufficient fuel to rally attempts.The short term swung around swiftly. The CPR indicator is a good one to show us how the sentiment swings on an every day basis. Using Neotrader we can track the shifts in sentiments very quickly and here is a snapshot of what the software shows at end of Friday. See slideshow below..These are the number of stocks, at the end of Friday, with their ending prices either above (green) or below (red) the next week CPR. It can be noted in the boxed area at the top of the figure that there are 165 stocks (out of the 191 in F&O list) that are present in the bulls list compared to just 26 in the bears list. This clearly shows a sharp and sudden swift toward the upside. This number was almost the other way round in the last week! By tracking the changes at the daily level vs the list of the weekly level during the week ahead, I will get an idea whether the trends are strengthening or falling off. Let's see what the indices need to do for the bulls to take some charge. First, continue past last week high to take on the option players at 17,500. That shouldn’t be too much of a problem if a rise occurs because we are seeing some unwinding at this strike (April series) already. This should enable prices to reach towards 17,630 where the next gap zone lies. Continuation beyond this ought to open up room till 17,775 area. We also note on the options chain that 17,800 has accumulated sizable call short open interest. So that is where the next zones are being planned, it seems. On the lower side, we have overcome a gap zone that extends 17,250-17,100. This should provide us with the support zone for buying into dips in the coming week. So, in essence, cross resistances and hold supports, is the call upon the Nifty for the week ahead. Details of this can be seen in Chart 1.Can all these happen in this truncated week? Well, it can, but needs the support of helping hands like the banks and other heavies. Reliance has reversed its decline and should add about 4-5% to its current levels. The entire banking pack (private and public sector) seem ready to battle for the bulls. That is the best part of the current set up. If they come through, then the Nifty can achieve its higher levels quite comfortably. The other sector leaders seem to be just about waking up. If they improve then the odds for continued rise of Nifty seems quite likely.Last week, I had written that the first of the helping hand has to come from the US. And much of Friday’s positivity came out of the U.S. news and moves. The Dow seems have decided to move up from the support channel line that I had shown in last week chart. Since we are so well aligned with the U.S. market trends right now, we can continue to track their gains, if it happens, in the coming week as well. They are open all week and if the sentiment there remains positive, we will have a spillover positivity here as well. So the truncated week thing may not be so much of a factor if this happens.The Nasdaq has become the best performer in this calendar year among all indices and if this continues then it can still succeed in dragging out tech guys higher. But most likely, the market will wait for the first slew of results from these names before deciding on their course ahead. Expectations of slow growth still dominates here. Chart 2 shows Nasdaq moves..One of the big pain points for participants is the punctured portfolios (of mid and small caps). Chart 3 is NSE MidSmall 400 and here we can see some possibilities of revival if the rise were to keep up this month. A value area of resistance is being attacked and the momentum shows some range shift activity. Fingers crossed here. Results trigger here will take time (another two weeks maybe) and until then all we need is for the index to hold on and not turn negative..So, a lot of things need to be happening now—Nifty to go higher, the U.S. to continue its move higher, the news flow to turn better, mid and small caps to hold their ground and try to improve and for derivative data to improve. Is that much to ask? Maybe not, if we have bottomed already, as per the time cycle. Price cycles turn when the Time cycles are done. Primarily, I am looking for that to kick in here. One truncated week of trading to confirm that, perhaps..Be bullish biased this week. Use intra-week dips to buy. Overall, I feel market will maintain bullish trends until around April 19 or so. It's time to shed the tentativeness of the past month or two..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.

Nifty In Technical Charts: Time To Shed Tentativeness

The market will maintain bullish trends until around April 19 or so. It's time to shed the tentativeness of the past month or two.

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