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Nifty This Week In Technical Charts: Banks To Lead The Charge Higher

It is likely to be a good week for investing and trading, so make sure you are there to take advantage of it.

<div class="paragraphs"><p>Diwali Lanterns. (Source: pxhere.com)</p></div>
Diwali Lanterns. (Source: pxhere.com)

In the last week article, the advice was to look before we leapt. The market was indeed quite selective as had been indicated. The indices gained, with Bank Nifty doing better than the Nifty as the component stocks turned in a better performance. HDFC Bank, IndusInd, Axis Bank declared decent numbers and the market was happy to receive them with some mark-ups. Although the wow factor was missing from private banks, the market remained happy. Financial services stocks, too, turned in a decent set of numbers among the few that came out so far. But the field was really dominated by the power action seen in PSU Banks (up nearly 11% for the week) and had they better weightage on the Bank Nifty, then we could have seen some powerful pattern set up there. Nevertheless, with a 3.7% advance for the week, Bank Nifty continues to acquit itself well. The intra-day detailed chart of the index features the Bank Nifty this time. (See chart 1).

Nifty This Week In Technical Charts: Banks To Lead The Charge Higher

This time the trading has been fairly linear and, hence, money making would not have been difficult for traders. Those that didn’t do well should think about their methods, stops and quantity. When markets are more linear, then it is best to trade one side of the trend and, for this week, it was up for three sessions and down for two. Three gaps were in favour and one against the bulls. The VIX was down by around 5% and that too attests to the non-volatile nature of the movement.

Breadth was decent. Banks, auto, cement and telecom saw good gains by component stocks. The breadth was decent in the retail patronised segments of mid and small caps as well. In the last week, it was mentioned that the MidSmall400 index was looking a bit iffy with its trends. One is happy to see the index make some attempts to hold on to the levels and try to stave off any pressures to the downside. Another point made last week was that this looked like a pop-and-drop market. But so far the market has not been interested in dropping—even though not street-beating results have come through so far. Clearly, there are pressures on different sectors with the inflation and other factors but the market seems ready to take this in its stride as yet. One of the positives is that there haven’t been any howlers so far—everything has been either at par or slightly better. Seems like expectations are not too high and people are more hopeful that companies shouldn’t show damage to their working. So far, that expectation has held and so the market is steady to better.

On the weekly charts, the Bank Nifty has seen a better build-up for the coming week. The RSI indicator has pushed through above 60 levels in the week gone by as also strengthened above 60 in the weekly chart as well. The ADX line is just about to pick up trends while the DI lines are situated rather well on the weekly charts. Both these, combined with the price action, suggests that we may see more action in the week ahead by the banks. Chart 2 shows the situation in the weekly chart of Bank Nifty.

Nifty This Week In Technical Charts: Banks To Lead The Charge Higher

On Thursday, the FPIs bought a substantial quantity of options (over 15,000 crore) and it has been noted on past occasions that such large figures (they generally range around 3,000-5000 in a day), the market has tended to give a large move. The last occasion when this happened was on Aug. 29, after which we saw the market rise sharply for the next few sessions. It has set off nicely on Friday. Can expect it to continue further in the week ahead?

In the last week letter, it was mentioned that a move past 39,625 would get the bulls charged up on the Bank Nifty. This proved to be correct assessment and we had the Bank Nifty finish the week near the highs. Having regained the territory above 40,00 once again, bulls may not want to let it go. I am making more references to the Bank Nifty because it is the more traded index and hence the trader sentiment gets divulged more by its positioning. PCR at the end of the week is 1.16 showing good shorting of puts to play the long side. Continuation above 40,700 should see the Bank Nifty improve further during the week and hit all -time highs. If that happens, the Nifty should also get a nice leg-up. A new high here will certainly get traders all excited and if that gets combined with some good news from results then we could even have a party ahead!

Nifty This Week In Technical Charts: Banks To Lead The Charge Higher

If that were to be a case, then can PSU banks continue their great performance of the last week? Chart 3 shows the relative performance of the PSU and private banks. It can be seen that the private bank have still done much, much better than the PSU banks. So, unless there is evidence to the contrary, we should still be looking at private banks to lead the charge. PSU banks, after their current show may continue but may not lead.

Nifty This Week In Technical Charts: Banks To Lead The Charge Higher

If private banks have to lead, then we can check through a relative performance chart. See chart 4. We can see ICICI, Kotak and HDFC Bank are the ones best poised to lead the charge. No surprises there, really!

Nifty This Week In Technical Charts: Banks To Lead The Charge Higher

For the Nifty, it still seems like a good long haul to new highs. But if it has to get there, then the banks will be one sector followed by FMCG biggies like ITC, Titan, Hindustan Unilever and Nestle to power it ahead. The rest will all have to pull their weight collectively for the Nifty to make a charge higher. So watch the FMCG space along with the banking space in the coming week.

Summing up, we continue to be on the bullish side, looking to get into long plays wherever news flow emerges and where price action justifies. Banking and FMCG should lead the charge to higher levels but the key really lies with the banking pack. If main indices move, then there should be some extra juice of sentiment available for mid cap stocks that come out with good results. So keep a watch there as well. It is likely to be a good week for investing and trading, so make sure you are there to take advantage of it. Next week has holidays but it also has the natural sentiment cheer created by the festivities. Let's aim to take full advantage of all those.

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.