Nifty This Week: Technical Charts And More – Complacency Setting In?

The move was quite well-distributed across sectors last week. Barring IT, the rest of the sectors were trading better during the week. When we raise perspective to the current April to June quarter, we find the situation to be favouring the bulls heavily. Here is a sector view for the quarter from Neotrader. One can note immediately the flood of green across the sector bars. It’s like the bears haven’t been able to get their foot through the door.

With this kind of positive market breadth, it is not surprising to see the index continue higher and perhaps should continue even higher in the coming weeks. For this week, the prices did maintain their upward focus despite some minor pullback and stalling. So the bulls are alive and well. Once again they managed to finish the week at the top.

It certainly seems like the market managed to outguess the rest of us in the matter relating to the coronavirus. Despite the rapid spread of the current variant and a lot of noise by those opposed to the government of the day, the markets would have none of it. It just continued higher as if everyone was at the peak of health. But it did it so quietly that nobody seems to have got taken in by any extra levels of enthusiasm that are usually a part of all-time highs. Take a look at the daily chart of the Nifty.

But why did the market rise then? Now note that almost every candle has a lower shadow! This means that the informed set (the khabris) has been quietly buying up all intraday dips, every single time. Looking back, it almost looks like taking the candy away from the kid!

Evidently, there has been a high level of disbelief in this ongoing rally, right into the end of this week too. One of the clichés attached with this kind of behaviour is ‘climbing a wall of worry’. So long as the market keeps doing that, there shall be no declines. This is one of those phases of the market which proves the gent who said that “more money has been lost waiting for reactions than in reactions”.

Here is another curveball. Through the last several weeks, the FIIs have been sellers. Earlier, everyone was calling this an FII-led liquidity-based rise. Now what? Prices are still rising and it is not just the large caps, the mid- and small-cap stocks too are flying out of the window. The only explanation that I can think of is that the power of retail traders and investors is now becoming unimaginably large. In the U.S. recently, there was even a case where the retail guys thumped the institution set! This has never happened before. Ever. This is because of the Covid-effect. It has now created investor and trader pockets all over the country, people who hitherto had never ever looked at the market.

Add to this the powerful thrust of technology into the trading process, the rapid rise of discount broking, etc. All these guys have seen is a bull market (the current one) and as we all know it, bull markets are heady stuff and they feed on an ever-enlarging cycle of participation. Take a look at the India VIX, it has dropped to a multi-month low, breaking a long consolidation. The long-term low of the VIX is around 10.5 and it seems headed towards there. Undoubtedly, some complacency about the trend is setting in. There was recently an article in a paper last week that the fear component in the market is dropping.

And now, some heavier stuff and crystal gazing! In last week’s article, I had mentioned that a cycle-high timing is coming up around Jun 17. The index is also winding higher. Here is a chart of some Fibonacci work on the Price and Time axes. I have used external projections of swings for Price and an Alternate Price Pivot method for Time.

Ending phases of cycles are often quite dynamic and no reason why this one should be any different. So the market will continue to be strong on the surface even as changes will happen underneath. The falling VIX is perhaps pointing to one of the changes. The disbelief in the rally may result in some sudden dynamism especially if triggered by some good news. The Price and Time work is to put some perspective on by when and where this could happen.

Will this work as expected? I don’t know but it certainly helps me get prepared. If it happens, I am forewarned. If it doesn’t, nothing is lost!

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 BloombergQuint or its editorial team.