Nifty This Week In Technical Charts: Stock-Specific Action To Dominate

It was a mixed week with hardly anything happening. The only notable feature was the crossing of 18,000 levels and the ability to hold above it till end of the week. That ought to have accounted for more action upward but it didn’t. Gains accrued for two sessions thru gaps but bulls couldn’t work on that advantage much. This emboldened the bears to try their hand at pressing prices lower but they came up short on that attempt as well as the market saw some mild recovery towards the end of the week. The week’s action ended up looking like as shown in Chart 1. But the weekly candle was placed better and one can draw solace from that more than anything else.

Part of the reason is the lack of enthusiasm shown by Bank Nifty which dragged through much of the week, even as a couple of bank leaders attempted to rally. We need to see much better action come from there if Nifty has to continue. Last week, I had also mentioned that if banks didn’t pull their weight, then other sectors would have to perform. Metals were a surprise gainer in the week gone by while public sector counters (including PSU banks) were in good form. It does seem that sectors like industrials and manufacturing may continue to fare well in the coming week and may keep the Nifty alive ahead. Two weeks running I have been looking for banks to come through but they have disappointed. The set-up in the leaders is still not so strong as to create that required push. A sole State Bank Of India won't be able to push the needle too much. So keep an eye on the private banks and see if they move, for, without them in action, bank sector will dawdle and Nifty may not get the needed push.

Many are hopeful of IT and pharma revival but here too it seems to be a big struggle. The IT pack results were quite ordinary and hence did nothing much for the sector and consequently couldn’t move the Nifty by much either. Analysing the chart of the index a couple of weeks ago I had commented that prices were nearing supports and could rally. Chart 2 shows the updated version of the same chart as earlier. Surely, a good support level ought to have produced a better bounce off it than what we see in the chart here. To me, this appears to be more of short covering rather than any fresh buying. Without fresh buying, no stock can move up much. While the main leaders showed some bottom fishing buying, the mid-cap lot from IT are still quite pressured. I would expect this sector to be a player in the event the market dips. So avoid longs here.

Similar situation exists in the pharma space. Here too lots of expectations of rally continue to prevail but the stocks are having none of that. I had mentioned earlier that there are only two stocks from this space (Cipla and Sun Pharma) that are in play while the rest are dawdling and some even declining. Maybe, we see some mild recovery in Granules but that’s about it. To hope for trends in the pharma space would be silly as there is absolutely no evidence of that setting up on the chart. I mean trends of a consistent type—not a minor spike now and then. Avoid, except for the first two items mentioned.

Metals, like stated before, sprang a surprise by staging a good rally. But looking at the stocks within the metal index, one is again left with misgivings about the continuation prospects. JSPL always shows higher beta but for the rest it is not a happy setting. Tata Steel came out with a howler of results but has been spared the blushes so far. But I don’t think it can survive any downward push to the sector if one were to happen in coming days. So, this is another sector to avoid for buys.

So, what could be interesting for buyers could be auto stocks. M&M and TVS Motor are leading from the front with great trends but it seems to me that most are butting their heads against a non-moving Tata Motors! Sometimes, people can be such prisoners of habits! Allied stocks like Apollo Tyres and Bharat Forge are also surging to new highs and should be tracked because there is definite bullish action going on there. Chart 3 shows the situation in TVS Motors and hardly anyone seems to be speaking about it.

Cement could be an area to look at in coming week and collectively, they seem to be making a go for a rally. Chart 4 shows an ersatz index created out of prices of top cement companies and we can note a trendline breakout during the week. Ambuja should be a good bet for longs.

Of course, one cannot not comment on status of movement in PSU and a couple of other financials. Post the June quarter results, I had mentioned that Federal Bank would be a good winner and the stock continues to perform superbly. It is already about 30% up since then. SBI is going great guns and has pushed to new all-time highs. Results are yet to come but looking at the strong numbers of most other banks, there is no reason to expect it to post anything soft. Hence longs can be created here too. Bad results have done Bandhan Bank trends in but the chart in this one has been weak for a long time and looks set to be weak even ahead. A fellow traveller used to be RBL Bank but that one seems to have corrected course and is now drawing lots of volumes indicating some kind of revival ahead.

Option traders generally work in tandem in Nifty and Bank Nifty. But over the last week or two, this trend has shifted. Bank Nifty is attracting call sellers (limiting the upside), while the Nifty is attracting put sellers. PCR has consistently remained above 1 for Nifty and below 1 for Bank Nifty. This is one area to watch for any shifts in trends across the week. Chart 5 shows the change in OI for Bank Nifty for the next week expiry. Note the strong action in Call shorts (blue bars).

The sentiment is still clearly biased towards the bullish side. The U.S. Fed expectedly raised the rates another 75 basis points but it had very little impact on our markets. Ability to shrug away bad news is a bullish characteristic. Therefore, we should continue to be buyers at lower levels, if seen, during the week. The two indices at loggerheads may cap the amount of gains that may occur unless other sector indices chime in with large gains. So, for the week ahead, it is really the widening of the breadth that will be an important factor to gauge whether the bulls can sustain their efforts to take the market to a new high soon. If that doesn’t happen, then we may continue to see some desultory price action and option sellers may rejoice while directional players may find the going more difficult. Stock-specific action is more likely to pay off and that is why this issue has paid some additional attention to stocks that could be in play from the bullish side.  

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.