Nifty This Week In Technical Charts: Bigger Trends At Make-Or-Break Stage

Event of the week was the all-time new high reached by the Bank Nifty. A couple of months ago, the Bank Nifty was trailing the Nifty by a goodly margin but has made great strides to pip the Nifty to the tape of hitting new highs. That is a remarkable comeback by the financial sector and here the effort was shared in good measure by private and public sector banks as well as financial stocks.

The Nifty wasn’t a laggard, having worked its way towards former highs, hitting a high at 18,123 before we saw some sharp cuts on both indices on Friday. Nothing ostensible by way of reasons emerged for the decline, so one has to presume it is routine profit-taking activity. But the ending for the week was not encouraging.

It can be noted that the initial bullishness early in the week was further buttressed when we had the sharp gash for an open on Wednesday but we recovered superbly. However, we ended up making a double top of sorts and this was confirmed (in the intra-day charts) when prices fell through the valley created on Wednesday open. Another gap down on Friday now creates an immediate resistance at the gap area (around 17,800-875 area) and that is the first port of call in the next week if rallies occur.

In the last week article, I had mentioned that the Nifty had some ground to cover which may help the Bank Nifty stride higher. The Nifty fell short of the target given slightly, while the Bank Nifty overshot the target slightly as well. In the fall of Friday, the Nifty has broken its near-term support and hence now probabilities of declines to around 17,250 open up. The Bank Nifty has managed to hold on to its strength as of now. But with the Nifty cracking a bit, one has to remain alert about weakness appearing in other indices as well.

At this stage, the weekly Ichimoku chart makes for some interesting evidence.

We can find the prices (future cloud) are on the verge of a positive crossover. For this, the market has to reverse to an upmove from next week—earlier in the week, the better. This will be a positive development for multiple weeks then. At the same time, understand that a down move from here by end of next week, would flag this move as a failure to produce a Kumo twist signal and hence a bearish development. Next, the Chikou span line can also get into some good position if there is a move higher from current levels. Similar to the Kumo twist above, a failure to move up will put paid to bullish expectations as the CS line can then get into the prices and this will leave to consolidation type moves for a while. So, both these past and future portions of the Ichimoku system are suggesting that the market is at a make-or-break situation for the bigger trend. This shall make the next week act in an important one.

In the short term, we are also finding that the prices are above the cloud as is the TS line, while the KS line is flat lining within the cloud. All these suggest that the Nifty can find support during dips ahead and that should be in the range of 16,800-17,000 levels. Longer-term players should continue to have their stops placed near this zone. It doesn’t automatically become a buy zone because we may have to check for other associated signals at that point of time.

Macro Factors May Impact

It is possible that we may not see big trends for a few weeks because we don’t have any local price triggers. The next quarterly numbers would start flowing only from second week October. Usually, it is my observation that at such times, our market becomes rather sensitive to global factors. Most of these are in the macro area which many traders find difficult to interpret. Hence, they get into a very definite trend following mode and often get tossed around in the volatility caused by shifting sands of global news. Such times are better avoided by active traders or played with lessened participation.

Right now, U.S. inflation, rate hikes rule the narrative. This is what created the drop during the week. ECB set the ball rolling with a 75-basis-point rate hike, while Argentina took it to stratosphere with a 550% hike! With inflation also having spiked a bit locally, we shall now be debating the size of hike by the Reserve Bank of India and alongside, the Fed and this will ensure some volatility. The currency is another sensitive item and the upside move in the Dollar index as well as the U.S. 10-year yields will also create bearish noises that may see echoes locally. Crude has receded nicely and that ought to quell some fears but talks of demand destruction and recession will impact in bearish ways. India inflation is expected to recede ahead and if the RBI gets in control mode there as well as on the movement of the currency, we may have some positives emerging out of those. FIIs have bought in September too but the last couple of sessions have seen large quantum selling. The market is sensitive to this data.

All in all, it seems we have enough negatives to keep the lid on a rise. But the new narrative of the market is ‘decoupling’ and if that takes hold, we may yet be able to escape the clutch of any of the bears. Chances are that we may get into a range to see these data points off until local news flow resumes.

Trading Strategy

People get unnecessarily worked up with targets. A target of 17,200, for example, suddenly looks dire bearish when it is really not. Most times the journey towards a target gets covered in gaps and there is nothing that can be done about it too. When markets make a turn, one has to step back and take a bigger view. A drop to a lower support need not mean a trend reversal, even in the short term. If you were playing the short term, then it is also your job to keep taking profits as the market goes higher. Obviously, the last in position will give you losses and those have to be accepted. Its just part of the game.

With 17,000 levels as a decent support zone, one should look at the positions one holds. If they are stocks that are in a sound up trend, then one need not fear any major damage. But if you have been foolish enough to get into poor quality stocks then you deserve to take a hit. That’s just the way it is. So, if next week is soft, then look at the quality of the trend of your longs and take a decision. Intermediate and long-term trends will remain undisturbed so, for such players, a drop in the short term could be a welcome opportunity to buy or add.

Bank Nifty outperformance with the Nifty is likely to persist ahead too, hence one can continue the approach of trading in the former and looking at big bank stocks (particularly SBI and ICICI) for cues.

Having made it to second-richest man, Adani Group stocks are unlikely to surrender levels and jeopardise the man’s status. So dips in the group will still be supported. Elon Musk is slightly beyond but that doesn’t mean that Gautam Adani is not going to try for that title. Adani Enterprises Ltd. is entering the Nifty at the end of the month—so like it or not, passive Nifty funds and ETFs, etc. will be forced to buy the stock. The promoter buying 5L shares last week only makes that aspect even more compelling.

Remember the ‘decoupling’ theory that is gaining ground. It should help stem declines emerging out of global triggers. So not to get panicked into any precipitate action.

This phase may see some interest shifting towards mid caps. So, those with investing funds should pay more attention there.

The bigger trends are placed at a make-or-break situation. The ‘break’ part of it may be more of consolidation than declines. So be alert for those and lighten up longs if it occurs. If Nifty ‘makes’ it, then turn aggressive on long side too.

Until next week, over and out.

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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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