Nifty Future Analysis: No Specific Cues Yet, Alertness Needed To Win

Nifty Future Analysis: The week gone by was only slightly different from the earlier one. The market still hasn’t gone anywhere yet. Monday started with the same kind of dullness of the last week, but the market quickly made amends by moving up on the next two sessions. Just as traders were getting ready to play the long side, the bears came right back, slammed the door in the face of the bulls, particularly in the Bank Nifty. FII were buyers earlier in the week, but turned net sellers once again. 

Crossing of 18,000 raised hopes, but weekly close beneath that level is a bit of a dampener. Bank Nifty has not fared well and even threatened the 40,000 level (nearly) and continues to be vulnerable for further declines. Decisive rejection of a move past 42,000 is a pointer to the continuing weakness in the Bank Nifty.

17,800 remains the inflection point for the Nifty for the week and dips during the week need to maintain above this level. For BNF, it should be 41,250. Multiple pivots at that price level makes it an important inflection point.  

Two weeks have gone by with the indices remaining in the same range and that could presage a trend. So far, volumes have been absent during downward moves, so that continues to be one of the things to watch. A new trend should display higher volumes in order to sustain. Next, creation of large short or long position is necessary to create even a short-term trend. These days, this action happens on Options front, rather than in futures or equities. We find that there has been a sharp increase in Call writing at the end of the week. So, we may need to see some upward action that can lead to a short squeeze of call writers would be mandatory for a rise. Else, we may not see any trend emerge and we may continue with the volatile action seen across the last two weeks.   

The key element here is to estimate whether we have ended a corrective pullback at the recent 17,400 area. Chart shows Nifty with some Gann price cycle lines. The encircled areas of the rise show us that the rise began from a dashed line cycle and ended on another dashed line cycle. So, ideally, the corrective pullback should do the opposite, i.e. end on a full one cycle. We can note the third encircled area is a bit non-conclusive on that matter.

The closing prices are at or above the solid line cycle but there have been forays towards the next dashed line cycle as well (without quite reaching it). Hence, it is not too clear whether the low is established or not. A good support zone will send prices up swiftly and by some decent distance. Neither has happened. So, we need to go with the expectation that the 17,400 low is not the end of the correction. 

If readers recall, in the annual forecast that I had made at the start of the year, I had mentioned that the low for the year would probably occur in March. So, from that angle as well, we should be looking at any rally that may occur in the coming couple of weeks as only a limited rally. 

The question then is how far can a rally go if one sets in? Using the same levels seen in Chart 1, the next higher price cycles are around 18,200 and beyond that at 18,480. A 62% retracement of the recent fall would also put us at around 18,400 area. A contra-trend two-point projection would also make it to that area. So, it seems that around the 18,400-18,450 area, we have some calculated target clusters and should aim for that zone. 

A good sector to play for any upside would be Capital Goods. Chart 2 shows the BSE Capital Goods index and it is among the very few sector indices that is challenging former highs.

The momentum reading is also quite positive and is suggestive of continued advances in this space. The top companies in this index are all into good uptrends that seem to be just warming up, so we should see continuation. Stocks like L&T, Siemens, ABB, BEL, and HAL are all in good demand right now, and that is not going to fizzle out quickly. So, definitely a sector to keep track at current levels and on declines as well. Many stocks from here are among good beneficiaries of the budget. L&T was one of the first stocks I had mentioned in these columns, in an article written post-budget. Siemens is another that has shown fresh breakout in the last week. 

Another sector that I like is Auto. Chart 3 shows the Auto index and here, too, we find that the prices are currently at the level of the former highs. The recent Q3 results showed a good trend of positivity in many of the auto names, and the news flow there seems to be consistently positive as well. But the stocks here are not into such robust trends as it was in the case of Capital goods. So, one may have to pick and choose through the selections.

With almost no specific cues to which way the market shall move, we are reduced, yet again, to wait for the trends to tip their hands. It is quite probable that the market may continue its one up-two down type of moves for yet another week as there are really no key inputs scheduled for the week ahead. Such markets are of interest to day traders only and they too need to be quite proactive to be able to take advantage. Multi-day and positional players should attempt to be very, very stock-specific and should not be chasing big targets for now.

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Neal Bhai has been involved in the Bullion and Metals markets since 1998 – he has experience in many areas of the market from researching to trading and has worked in Delhi, India. Mobile No. - 9899900589 and 9582247600

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