Nifty This Week: Technical Charts And More – Wait For A Trigger Rather Than Anticipate One
It seemed like the market was ‘evenly poised’ at the end of the curtailed week of trading last week. Well, that even-ness, if it existed, did not really translate as the market opened with a giant gap on Monday, made a show of recovering from it but succeeded only in filling (almost) that gap and then sliding afresh (again with a down gap) on Friday. Essentially, it kind of just continued the moves of the last two weeks. A glimpse of the same in the first chart for the intra-week move coupled with that of the last couple of weeks.
The low of Tuesday was actually the bottom of the current fall from the April 5 high. It bounced from there (a tad) as prices had dropped to the 50% pullback of the March-April rally. But is that enough to look ahead with some expectations? Seems tough.
I refer to the comments made in last week’s column, “The Nifty rally to above 18,000 was not really accompanied by the good momentum increase on the weekly RSI and that is a bit of a dampener. This might also increase the probability that the Nifty may actually first seek to find support along the median line rather than attempt to hit the upper channel once again.”
I reproduce here an updated version of the same chart. It shows prices dropping to the median line (tapping slightly below it too) as of now. The RSI, meanwhile, dropped to the 40-level and is poised there. It shows a tendency now towards the neutral and possibly points to some ranging action ahead.
I have also added a sentiment indicator this time to the chart and here we are getting a reading of Fear (on the daily chart).
Last week I was looking for some positive feedback to emerge from the banking pack where prices had dragged themselves into some sort of resolution point. Sadly, there was no continuation to those attempts and we fell apart, snuffing out any possibilities of a helping hand. The HDFC twins continued to fall during the week but met with some value hunting at lower levels. However, it does seem tough for them to regain their earlier firm footing. Foreign portfolio investors seem to have an inexhaustible supply of these two that is more than sating any demand from domestic funds.
The hopes that other sector indices would provide some relief also fell flat. The soft earnings numbers and commentary from the IT leaders saw the sector index getting hit down by about 5.6% this week.
The IT Index chart is not looking healthy at all. If IT majors were to continue their decline, it will become a fresh pocket of pressure.
Midcap IT stocks are expected to do better than the leaders, but if there is overall pressure on the sector, even they may find it difficult to sustain uptrends. As it is, many names are already down, breaking strong uptrends of many months. Hence investments in IT stocks may need to get protected.
Last week, I had also written, “So, it is time to be a bit vigilant as the market is poised a bit evenly, not just locally but also perhaps, globally too. Adventure must be curbed and fresh trades should be taken with good analysis and reasoning only”. This continues to hold good because the skies over the market remain cloudy. Earnings are not out in a big way yet so one may still expect some stock-specific bullish pockets to emerge but you'd have to be very alert to spot them. The market is also quick to punish stocks where there is a problem. That way, at least sentiment is still evenly poised, even if the market was not.
I go into the next week, therefore, without much expectation as the market may choose to continue what it had been doing the last couple of weeks. In the short-term, it may take some substantial news flow to snap the declining mood and if that happens, there would be enough time to scramble to get on board any new trend. There are big-name earnings due next week that can possibly jolt sentiment. But I would rather wait for that than try to anticipate it.
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 BloombergQuint or its editorial team.
