Nifty This Week In Technical Charts: Time To Take Profits From Shorts Off The Table

The market had been churning for five weeks on the trot and something had to give. Soon. And it was the support that gave in. Under assault from strange quarters. No one quite knew what to make of it—just like they couldn’t when the original Hindenburg was launched. For info, the Hindenburg was a gas-filled flying transport in the 1930s. It was called the blimp and given the name Hindenburg later (for the then German chancellor). Did you know that the most famous of Hindenburg was the Good Year blimp? But here you had Hindenburg Research instead, setting us off to a bad year start. To keep the story going, the original blimp (also called the Zepplin) burned and crashed, killing about 36 people; and here we have it burning and crashing a market with thousands getting killed (metaphorically). A question pops to the mind—did they choose the name of the company deliberately? Like crash and burn everything they research? Reading their history certainly seems to suggest that they like to create some mayhem. Well, folks, you certainly got your jollies here in India—Nifty down 3.5%, 6.1% for the Bank Nifty, and 4.5% for Smallcap—all over the last two days. Crash and burn baby. Mandivalas of the market are shouting Hindenburg ki jai and some old timer Germans just woke up scratching their heads and wondering 'What now'?Just in case someone didn’t get the drift of all that, I am speaking about the report that cracked the market in the week ended—the Hindenburg Research. Those that didn’t quite get what I was talking about earlier maybe could do some research on the Hindenburg blimp itself.Anyway, getting back to the point, the attack on Adani brought out a bearish angst among the traders and the market went swoosh. All interest in the budget went out as people got into managing their own persona budgets and burned up phone lines to their advisors and money managers, asking whether they are better off with money in a fixed deposit? Typical. But should one panic much? Let’s look at the weekly chart this time first. .Oops, went the candle watcher—big bearish bad candle after 2 dojis. Gasp, more declines ahead, they cry. Then we slap an Ichimoku overlay on the chart and those guys go, Oh, not too bad, hmm, buying opportunity maybe? Since they are both screaming the opposite, they turn to the third umpire to break this deadlock—and find that he is out to lunch. But we do need to solve this quandary and therefore I step in as a third umpire and declare 'Not Out' as the reply. Shouts of relief? Ah, not so fast, friends— there are some caveats.First, the evidence for the ruling. Candlestick is a single pattern while the Ichimoku is a combination of patterns. We have many in there fighting for the bulls yet. Price is above the cloud, TS and KS lines still positively phased, the future cloud is bullish and the CS line is still above the prices. We have a flat-line for SenkouA in the present as well as in the future so declines (it they persist) will meet support soon. All of these can be seen in the chart above.Now for the other shoe to drop. For that we need to turn to the daily chart and there, the news is not good for day and swing traders. Chart 2 shows the set-up..The fall has cracked the cloud and closed beneath and this is seen dragging down the CS line with it (still in the cloud, though) and even TS/KS lines are set to break below the cloud. The thing about Ichimoku charts is that they render trend break signals in subtle ways. There are two of them circled on the chart and unless you were following the larger trend (as we have been doing since topping out on Dec. 1), it would be easy to miss those signals. The Nifty took its time but never really threatened those sell signals and now has come good on it with the downward thrust on Friday. Further follow through in the other lines will only seek to extend the decline afresh in coming days. So, if the daily chart has to fall in line with the better set up shown on the weekly chart, then it is essential that the decline stops around here. For, extension into the next week will trip up the other lines on the daily charts and traders may have to face more pressure in the week ahead.In a way, the last few weeks seems like those TV serials where the ending scene keeps you guessing as to what is going to come in the next episode. So, here too, the index comes to a halt every Friday where the possibilities for the next week are multiple! Will the market hold and save the short term from extending into weakness? Or, will it break and cause more pain to traders? Perhaps, the bigger picture will finally exert itself and save the day? Too many questions. To be answered only when trading opens next week maybe. Like the next episode of the serial.So now, the major question—will there be a follow through down? For this, some time analysis is in order. It is always important to know where you are in the trend by time to know where you shall get to in price. Also, we need to look at the sentiment. Let’s look at that first.It is obvious that this assault on Adani has been in the works for a while (how else will they have the stock to short?). But Adani could make life different for them and it may be no repeat of Nikola (their early victory). Most certainly, the Adanis are not going to fold up and play dead like Nikola while their stock went from $90 to around $3 in two years. If the blimp-guys are readying for taking Adanis to the cleaners, then I would think they will have quite a fight on their hands. Long ago, I saw a movie which had a nice dialogue which went something like this, ”When you go to war, dig two graves—one for your enemy and one for yourself.” I would think that may very well play out here. A Google search showed that blimp has all of five employees. Very soon it will be known who is behind them on this play. Then the fun and games should start. The main point here is that this seems like something that is going to play our for a while. The main damage seems to be done (average decline of more than 20% for the group and associated stocks) in two sessions. Very soon, the market will tire of this. In any case, hardly any institutions are into Adani Group (except LIC and they are saying they are in no panic. Why would they? They hold Adani stocks since 2015-16 and added) and among the retail, it is mainly punters—who are smashed in this fall. So, the narrative shall soon change.So maybe we should check out potential for Adani Enterprises, since it is in the thick of things right now. Chart 3 is weekly with some WD Gann work. Seems like some support of a rising angle line is reached. But the angle is a steep one. The time count starts from Feb. 8 and stretches till Feb. 20 or so. Maybe some consolidation here? See the dotted trendlines on the chart? That is some expected resistance zones ahead. So this picture kind of bears out the opinion above that the Adani matter may slip from the headlines and slide towards page 12 in the papers..So, if the main culprit is going to get into some consolidation, something similar should be in store for the Nifty too? The chart reveals that a turn in the trends may be available in the period of Feb. 7-9. So I would be watching this time zone carefully for evidence of a trend reversal. If it turns up in that window, we could see rally progressing till Feb. 28. But it is noted also that February is a month of many oppositions so it is more than likely that we may have some two-way moves or ranging action. One should also watch the moves on Feb. 15 as well as Feb. 20 for emergence of some larger action and the top/bottom of these dates can be kept as a reference point to judge trends emerging thereafter. For short-term players, the trading extremes of Jan. 31 needs to be watched. A rally will be on if the high of that date is exceeded. I expect Jan. 31 to be a positive day. Since budget is on Feb. 1, it is possible that a trend may emerge for a few days up to Feb. 7.At Friday low of 17,572, the prices reached a 1.618 extension of the last contra trend move and hence this can be kept as a good stoploss definer for any existing longs or any that are created afresh. Chart 4 shows Nifty 60m with the price extensions shown. The chart also has Time markers and we can see that they have all been pretty good hits. The next one is marked with a red arrow (Feb. 16). Until then, prices may remain in consolidation within the range 17,500-18,200..The budget as an event can produce breakouts but this time around there is hardly any build up leading to it. Some historical data has been compiled by someone that showed that every time there is a negative move prior to the budget, the week following the budget always results in a gain for the Nifty. The sole exception I think was 1998. So, that is some comforting empirical data to go into the next week with. For any meaningful rally, the market needs to create a base first. So, no big hurry to rush into longs. But decent money has been made if one has been short. Time to take those home. .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.

Nifty This Week In Technical Charts: Time To Take Profits From Shorts Off The Table

The market had been churning for five weeks on the trot and something had to give. Soon. And it was the support that gave in.

Choose a plan