Nifty In Technical Charts: Time To Take Profit Now In This Rally

The expectation that the banks and financials may perform better by the end of the month continues to remain open.

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

We have notched up gains for three weeks on the trot now. We have kept pace with the U.S. markets in that respect where, too, a brisk rally has been in progress.

Since a lot of problems that the world markets were facing—mainly from inflation and yields—emanated from the U.S., the strength of the rally over there seems to have contributed to the continued advance in our markets as well. Plus, we had the earnings season throwing up some triggers or the other to keep us busy. But until the latter part of the week ended, the foreign institutional investors continued to remain sellers but seem to have shifted course in the last few sessions.  

Is this mainly short covering as many believe it to be? But flow of DMF is still continuing as SIP inflows remain unabated—it came in at Rs 17,000 crore for October. At this rate, we should be able to absorb continued FPI sales, were they to continue.  

But with earnings season over, the local triggers will ease. Fortunately, we have a pullback in oil prices as Brent dropped from over $90 to under $80. This is certainly a relief and inflation prints, both locally and particularly, in the U.S., raised the expectations that the rate hike bogey may be behind us for now. That fueled the rally afresh. A look at the yield chart of the U.S. 10-year seems to indicate that the decline may continue some more, so there should be continued fall out in other world markets, including ours. See Chart 1. 

Nifty In Technical Charts: Time To Take Profit Now In This Rally

Of course, the 38% retracement zone is being neared as of now, but a break of the support trendline and the overall pattern of decline would imply some more fall, perhaps to the 50% retracement zone around 4.25–4.35%.  

This would fit quite in line with our earlier expectations that our markets should be better placed in November, with a good finish for the month. In last week’s letter, I had written that we should continue to be buyers on dips and that advice remains largely unchanged.  

But the Nifty has more or less reached the higher end of the targets that had been given in earlier letters. In an earlier note, I had written: "Spillovers could take it to the 19,650/19,820 area as well. Important time count dates for November are 10th and 24th. If prices rally quickly then the targets mentioned shall be reached."

We had a swing low on Nov. 10 and since then, the market has been rising swiftly and, therefore, the second target was on. We have reached that already, but a bit of time count is left. Chances are that the market may churn here a bit to finish the time element and then, start to peel off a bit.  Chart 2 shows Nifty Futures daily hitting some Gann-based resistance lines, as of the week ended.

Nifty In Technical Charts: Time To Take Profit Now In This Rally

In the last letter, I had mentioned about the multiple trigger levels at 19,500–19,550 areas. Now that it is crossed, it would be logical to think of that area as the nearest support zone if there were to be some pullbacks. 19,630–19,530 is the wide gap of the last week that will also aid the support effort in case of a dip.  

Oscillators continue to be in support of advances. The renewed buy signal from my proprietary curated relative strength index indicator (Nov. 3) is still patent. The DI lines that crossed bearish back on Sept. 21 have now been restored back to positive during last week. Both these can be seen in Chart 3. These need to retain their bullish look for the rally to persist. Weakness now will trip the oscillators too—something to watch in the weeks ahead. 

Nifty In Technical Charts: Time To Take Profit Now In This Rally

One of the expectations was that banks would fare better during the week. The Bank Nifty reached beyond 44,500, but then the RBI came in with its twist and that led to most of the financials getting hit down on Friday. So, some halt has been called there. However, this step by the RBI may have some impact on counters like SBI Cards and Payment Services Ltd. (only listed play for credit cards) and perhaps RBL Bank Ltd., who are pushing their card business and personal loans big time, and some other lesser capitalised banks and NBFCs, but by and large, the others may not be impacted much. Thus, I expect the softness induced by this news may not have a lasting impact. Therefore, the expectation that the banks and financials may perform better by the end of the month continues to remain open.   

It is possible that the focus of attention may shift from the Nifty counters to others and that may help achieve the time target even as the price levels are more or less achieved. So, look for dispersion of the trend across more segments in the balance of the month. Market may, therefore, become even more stock specific, with the proviso that trends in stocks may not last unless some specific reasons crop up for them.  

So, it is time to be a bit nimble in trading. No signals of weakness yet. So, no shorting. Sometimes ending phases of trends, even short-term ones, become quite lively and we need to be on the watch for that in the coming two weeks or so. One can, however, begin taking some profits on counters which are offering it. No rush but let's get ready for doing that in the week ahead or two.

CK Narayan is an expert in technical analysis, the founder of Growth Avenues, Chartadvise, and NeoTrader, and the 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.

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