Nifty This Week In Technical Charts: The Market Is In No Mood To Relent Yet

Signs of overheating are flashing but positions have remained light, so there may not be an overhang to force the market lower.

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New swing highs were punched out and all that but that did not really come as a surprise to anyone. It was more or less expected and the fact that the weekly expiry and long weekend also did not influence the players to book out of long positions proved that the confidence in the market continued to remain higher. We did see a choppy time but, overall, the market maintained an upward bias through the week. The first chart carries the intra-week moves.

Nifty This Week In Technical Charts: The Market Is In No Mood To Relent Yet

The top finish is encouraging because of signals that can now emerge in the longer time frame charts. Checking the monthly chart of the Nifty 50, I find that the Nifty has just given a new all-time high close. The April 2022 high at 18,170 looms ahead as both a target as well as a resistance. But the way things are right now, I believe a move past 18,000 will ignite fresh sentiment waves. That said, one has to mention that the main resistance trendline is being reached. The current rise is equal in points to the last one but longer in time. See the second chart.

If there is a price extension now, then we will have an overbalance in price and time and this will seal in the bottom at 15,200 for some time to come.
Nifty This Week In Technical Charts: The Market Is In No Mood To Relent Yet

On the monthly charts, we have a solid rising candle for August (in progress, of course) that is seeking to overturn the slight bearishness of the last three months of red candle formation. But what is still noticeable is the limited nature of the decline in relation to the extent of the rise. See the third chart. It is still just about 25% of the rise. I have discussed this aspect earlier article and opined that it could be one of the reasons why we may still have another down leg pending. But as of now, the market is giving us no signs of the same. As ever, we should trade what the market is saying about itself rather than what we think it ought to do.

On the chart, a small horizontal line is marked across the prior cluster of OHLC data and we find the cluster point to be around 17,500 area. Hence the Nifty pushing and holding past these levels now would be a major positive development. While the crossing of prior swing highs is what most people look for, I also consider the crossing of ‘value areas’ such as the one mapped here also gives us a good clue about market intent.

Nifty This Week In Technical Charts: The Market Is In No Mood To Relent Yet

Supporting the index in its attempt to continue higher is the largely positive trend maintained for the quarterly results. About 57% of stocks showed positive profit trends compared to 39% for negative trends out of some 2,375 results declared so far. There weren’t too many misses among the larger stocks and hence the overall market trend has remained positive as well.

In the Nifty about 75% of the stocks were trading above their 200-DMA, a good signal that the trends are firm and price reversal even if there is some decline, it may be limited.

A sense of disquiet emerges from the high readings of the RSI on the daily chart. The indicator hit 80 on the daily chart and those are indeed over-bought levels. The last time when we saw the RSI at these lofty levels was back in September-October 2021.

Nifty This Week In Technical Charts: The Market Is In No Mood To Relent Yet

The point in favour is that there is still no sign of any divergence on the daily RSI chart. Note back in 2021, how very clear divergence set-ups formed before the market keeled over. Hence this can be taken as a warning that matters may be getting overheated but it is still not any signal alert.

One of the interesting elements is that the Midcap index seems to have got a bit charged up during this rise, more so than the main indices even.

The chart of the BSE Midcap Index shows a breakout of the main resistance trendline even as the Nifty and others have not done so yet.

Clearly, the market is looking beyond the frontline items into a broader space. Such a situation could likely persist with the overall market remaining steady to better even if the indices don’t climb to new highs.

Nifty This Week In Technical Charts: The Market Is In No Mood To Relent Yet

I had mentioned in last week's article about the possibility of DII churning and we find them on the selling side during the week. The money, I feel, should rotate into stocks announcing good results where some clarity emerges across a few quarters. Such stocks may see an outsized movement (eg. Tata Chemical or Trent that came with super numbers).

Among sectors, there has been a decent rally in metals that went almost unnoticed.

The final chart shows that the Nifty Metal index has rallied almost 62% from the recent fall. Checking on metal stocks we find that JSW Steel was the best among the lot in terms of outperformance of the index. But all others moved decently and look like they may still be packing some ammo for more gains. So could be a sector to look at during the week ahead.

Nifty This Week In Technical Charts: The Market Is In No Mood To Relent Yet

Looking at options activity, it seems that the Bank Nifty may remain more charged up next week compared to the Nifty. With a firm close for the week and a solid bullish candle closing above the supply zones back in January 2022, the index could be on its way to challenging the all-time highs. Among the main stocks, SBI and ICICI Bank lead. HDFC Bank and Kotak Mahindra Bank lag the index trends and are to be ignored.

Summing up, the market shows no signs of giving up on its uptrend.

Warning signs of overheating are flashing (RSI at 80 levels) but positions have remained light and therefore the overhang may not be there to force the market lower.

Besides, FPIs are now in a buying mode and that always creates some upward drafts. There are signs that the attention may shift towards the midcap and smallcap area and that may lead to some consolidation moves in the Nifty. This itself can lead to a pullback in the RSI levels, you don’t really need any declines to create that. And finally, the Bank Nifty could perhaps be more in demand and action in the week ahead compared to the Nifty.

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.