Nifty In Technical Charts: Another Dull Week?

The next week doesn’t really promise much by way of trends but maybe something new shall emerge, writes CK Narayan.

<div class="paragraphs"><p>(Source: Unsplash)</p></div>
(Source: Unsplash)

After the frenetic post-Budget week, where we saw some wild gyrations, the week ended 10th was a most docile one. Chart 1 shows the intra-week move of Bank Nifty and the encircled portion is last week’s trading. I have chosen the Bank Nifty this week, just to highlight the fact that the very volatile index was almost a pussy during the week. By comparison, it seemed like Nifty was full of beans, even though that one, too, was ranged much of the time.

Nifty In Technical Charts: Another Dull Week?

Every day, traders came to the market ready for a breakout, traded for one (on either side) but mostly had to cut the trade without anything to show for it. 

There could be two reasons for this ranging. One could have been the excess volatility that we witnessed in the week earlier, and so the market wanted some quiet time. Another could be that we are trading at a decent support and hence, sellers are not stepping forward. 

Chart 2 shows the daily chart with Gann angle lines (adjusted to supports) and the Fib retracement of the last leg of the advance.

Nifty In Technical Charts: Another Dull Week?

There is a cluster support of the 61.8% retracement and the Gann angle. In chart 1, one can also see that the volatile earlier week had created a double low support on intraday basis. 

When there are stronger supports underneath, the prices tend not to go lower. In addition, there were events in the last week which, perhaps, the market wanted to see off (Fed meet, RBI, inflation, etc) and since these went along expected lines, perhaps there was a reluctance to sell. 

The other reason could be that there was some overhead resistance nearby.  This can be seen in Chart 3, where we find that the small rally we have seen so far has met the overhead resistance and the inability of the prices to work up the momentum that was required to break the trendline was acting as a dampener to the sentiment.  

Nifty In Technical Charts: Another Dull Week?

In the chart, I have also added the sentiment indicator that reads ‘Fear’. That is understandable. When market goes neither up nor down for successive days, the sentiment does start taking on a tinge of worry or even fear. People always love a rising market and when that stops happening, their sentiment meter swings rapidly to the other end. Perhaps the rising interest rates in India is spooking the mood? Or maybe, the fact that the Q3 results are proving to be bit of a mixed bag is having something to do with it?

So, a bit of both factors too, perhaps? Net result, therefore, was a market that went absolutely nowhere for a whole week. But within those narrow moves, was there any hint of some directional probability indicated? 

Chart 4 shows the Nifty with a momentum indicator added (the StochRSI). Why this one? Mainly, it is a good blend of momentum (the RSI part) as well as ranging (the Stochastic part) and it finds some turning points quite effectively if the cycle lengths are set up correctly.

The chart shows some arrows marked for upside turning of the indicator and one can note that those points are, quite often, good buyable bottoms for traders. We can note that even the small rise of recent week has now flashed an upside signal. The moves are held down by the overhead resistance trendline but if there is a concerted move to take that out, we may get a decent upward action. So, that is something to watch out for in the week ahead. 

What if the upmove doesn’t occur? Well, in that case, the lower range (horizontal arrow) should be used as a stop. There aren’t any closer stops. As a bearish signal, this can be meaningful but that is something that I would prefer to deal with in case the occasion comes up. For now, I don’t expect that to happen.  

Nifty In Technical Charts: Another Dull Week?

The indicator is not to be mistaken to think it gives only 'buy' signals. I have not marked those because I really wanted to highlight the last signal. 

In the last letter, I had mentioned that we should be looking for higher bottoms to form now. So, even if there is a dip, I would expect that the recent low near 17,400 would continue to hold. The Adani matter seems to be running its course and while volatility persists in some of the group stocks, a few are still down for the count as the news waxes and wanes.

Curiously, I find that the time cycle of Adani Enterprises Ltd. (the focus stock) seems getting well-tied with that of the Nifty from around Feb. 18 onwards. And, since I have the market making a rally into the ending week or more of the month, I would expect that Adani Enterprises may also find some reasons to rally. Let’s see how that relationship plays out or if it does. If the Adani matter recedes to the background or group stocks begin to rally (or even stop declining), the sentiment would get a definite breather. 

Now, here is some interesting Gann degree analysis. Both the low (944.50) and the subsequent rally high (2,234) are sharing 270 degree (2x135) relation and hence, can be said to be in opposition. By that token, Adani Enterprises will have to either push above that high shortly or meet with some declines ahead. In the decline, I would watch prices of 1,745 and 1,580 rather closely for judging trends of the stock. In case the second support is lost, then the bears may make a comeback. Incidentally, these support levels also correspond to some Fib retracement levels too. So, for Adani bulls, 1,580 should be a good stop to maintain. Next Friday close (Feb. 17) would be a good time turning point to watch. 

So, we will leave it here for the week. Lack of new data kind of restricts what we can do. The next week doesn’t really promise much by way of trends but maybe something new shall emerge. The only time signature I have for the next week is Feb. 15, and that comes up for a possible down day. So, maybe some more ambling along, hit a low that forms a higher bottom and then move up from there is what I would think is the pathway for the coming week.

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.