Nifty This Week: Technical Charts And More – At New High, How Much Steam Left For June?

Nifty This Week: Technical Charts: So, the new high on the Nifty 50 was finally in. It was, as we had been discussing over the past few weeks, more a question of when rather than if. This is why we had asked readers to just stick with it and ride over the noise of the short term.

That article said, “Speaking from a slightly longer perspective, so long as the 14,450 area is not violently lost, there shouldn’t be a problem”. And indeed, there wasn’t, except that the market did reach down to test the resolve in that support zone before pulling up to higher levels by the end of the week. The action of the last week is shown in the chart below. It was a gradual ascent in the first four sessions followed by a thrust.

The support zone has wound its way higher and now the stop for traders would be revised to around 15,190 levels

But for the push to new highs where were the fireworks? Who was popping the bubbly? It was quite muted actually. This was surprising, considering that many in the market have been calling for new highs. But why this continued disbelief in this rise? Perhaps that is the surface view. Internally, it appears that people who matter have been busy loading up. At least, that is how it appears from the rollover data.

The positions rolled have been overall higher compared to the averages. The Nifty position rose by 4% while the overall stock futures roll rose to 93% compared to 84% earlier. The roll rates also ticked up a bit.

Nifty Technical Charts: This clearly shows that there has been a good long build-up in many counters. Hence, the market seems to have positioned for a new high already.

What also emerged from the roll data is how the metal sector seems to be a bit heavy in terms of positions. Compared to the previous rollover, the position increase in the metal stocks has climbed up significantly, with some names having 50-65% higher positions compared to last. Undoubtedly the metals pack has done very well indeed. But if these positions were created much in the last few weeks then they will act as a pressure supply overhead. The situation on the metal index can be seen in this chart.

The metal index has seen a bit of profit-taking recently. On the chart, note that prior corrections have all carried to the 50-day exponential moving average (arrows), and current prices are still a good distance away from the support average. This would mean there is room for declines before former support areas can work. This can have an impact on the sentiments of the market.

Nifty Technical Charts: But another sentiment-determining sector had a different inference to be drawn from the roll data. Banking and financial stocks saw, largely, position cuts in this month’s rollover. That was a bit surprising considering that banks were just about warming up. But a good portion of the rally was in PSU banks and those are punter delights and hence there might have been position-shedding on the price rise. The private bank index seems to be sedate still. But given the fact that the sector may be somewhat lighter in its holding and leverage, it is probable that any positive news flow for the banking pack could create an upward swing that will help the Nifty continue higher.

What can carry the Nifty higher is energy names and Reliance was at the head of the move.With the refinery stocks also throwing in some weight (BPCL declared a whopping Rs 58/share dividend) and a few others also doing well, we can expect energy to continue higher and help Nifty hold aloft.

The other sector where some help for Nifty might be forthcoming is consumer Staples and FMCG. These are well placed to continue higher but looks like they may need a bit of a push from some good news. Finally, IT and pharma also appear to be in decent form (particularly the former) and these have some stocks with good weight in the Nifty to help it along.

Thus, we are seeing that even if there wasn’t much cheer on the new high (did any channel anchors send out balloons I wonder?), the sector layout seems quite encouraging and if they can come through in the next week, we should have a lot to cheer.

May has lived up to its billing of not being a negative month at all. If one looks at June then here too we find a bias towards the bullish bias with 12 of the last 20 years being positive. In the years that we did see negative moves in June, barring 2008, the losses were quite limited and handlable. Thus, we can expect the next month also to be favouring the bulls. Using some time cycles, I mark the high for the month to be around the third week, and hence the ending could be off the highs. This has important implications for options traders.

I had, in an earlier article, mentioned that May could have a smaller range as a process of normalisation could begin. But this expectation was belied as the recent spurt over two weeks has pushed the monthly range higher. The quarterly range is already at around 1,355 points as of this week. Assuming that June punches out further new highs, the quarterly range of the Nifty shall also expand. This may, kind of, limit the extent of June gains and that too is something to keep in mind.

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Nifty This Week: Technical Charts: For the week ahead, the lay of the land seems to be rather placid. Dips to near the 15,150-15,200 area ought to create fresh demand and hence stops by traders can be kept beneath that. Slightly longer-term players can revise their stops now to 149,00 or a tad below that. The next projected high for the next week should be around 15,625.

Stay long. Stay safe!

Nifty This Week: Technical Charts And More – At New High, How Much Steam Left For June? via @goldsilverrepor
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3 thoughts on “Nifty This Week: Technical Charts And More – At New High, How Much Steam Left For June?”

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