It is tough to do a review of the market trends when there are only three trading sessions. Especially when one of them had a deep gash owing to an opening gap. Monday started about even and our expectations from the last week—that there may be ranging action—were about to set in. But overseas triggers upset those plans as the market caved with a wide gap on Tuesday, blasting big holes into traders’ long portfolios. Wednesday was left to repair some of that damage and hence no big shakes were expected and nothing much happened either. All one can say is that the down-move of the earlier week continued further during the one just ended. You get a glimpse of the same in the first chart for the intra-week move coupled with that of the last week.
We also moved over to the bigger picture last week, using the pitchfork on the weekly chart. The next chart has an update of the same at the end of the present week. Note that the expected down move has occurred from the top channel.
Now prices are suspended in the middle and there is an equal chance for the Nifty to either move up towards the upper channel or continue lower towards the median line.
This second chart shows the weekly along with the RSI indicator.
The Nifty rally to above 18,000 was not really accompanied by the good momentum increase on the weekly RSI and that is a bit of a dampener. This might also increase the probability that the Nifty may actually first seek to find support along the median line rather than attempt to hit the upper channel once again.
However, it is not as though the week did not have any positives. The banks showed some revival and the Private Bank index showed some action after being in the consolidation mode for many weeks. There is still some more to be done before the private banks can throw a party. The hoopla with HDFC twins brought some focus back to the area but that momentum fizzled out swiftly after a day or two. Nevertheless, the improvement in a few of the banking stocks seems to have met up with some following in the market and we see the Private Bank Index on the verge of an upside breakout. See the third chart.
The PSU bank index is not too badly poised either. Hence, there is a hope that banks, this time, may help revive the trends in the Nifty. No doubt, any failure here to stage an up move shall be a big disappointment and could lead to some reverse action in banks too. That makes it an area to watch during the week ahead.
Typically, traders don’t bother too much with the stocks from this sector and they are used as hedges most of the time because they are so dour and dull in their movement. But the robustness of last week’s breakout is certainly interesting. See the monthly chart of the Nifty PSE Index in the fourth chart.
Much of this upward drive has been contributed by robust performance from a couple of metal stocks in the index (SAIL, Nalco) and stocks like Container Corp. But of late Bharat Electronics Ltd. too has been pretty brisk and is one of the outperformers within the index. Despite FII buying in the energy stocks recently, many of them are still seen underperforming the index. The above-mentioned stocks may be among the better bets in the sector to seek a play.
In last week’s column, commenting on the continued action in certain pockets of the market (using the Nifty Alpha 50 index), we had said that there is action if one wants to find it. But casting our glance even further out to see if there is some indication of an overall bias, I want to highlight something that I follow for a glimpse on this issue. I use the S&P Junk Bond Index as an indicator of the speculative mindset of the markets overseas and use that as an overall indicator of how FII funds may flow. The fifth chart shows this chart of the High Yield Bond ETF.
We can note in this chart that the strong trends of the last two years did not really produce a larger shift to risk, and that as this chart moved to former highs seen in January 2020, the willingness started to fail and since September 2021, the prices have been dropping, meaning the market seems to be shifting away from risk. Prices are now down to 50% retracement of the rise from the March 2020 lows and are therefore poised at an interesting stage.
Revival from here can see some positive moves come into equities and cryptos but a break of the support might see a slide too, which could be about 3-4% before the next support is reached. If that is the case, then we could see some reflection of that shift away from risk as a downward slide of the Nifty towards 17,000 or slightly beneath too.
So, it is time to be a bit vigilant as the market is posed a bit evenly, not just locally but also perhaps, globally too.
Adventure must be curbed and fresh trades should be taken with good analysis and reasoning only. This is more for the longer pull trader and investor. For those engaged in daily or a few day trading, it would be business as usual, with nearby levels acting as the more important reference points. We have already dealt with that earlier in this analysis.
A nice long weekend holiday looms and most people will take this time off to unwind. But earnings season awaits us next week and times can get interesting, particularly on a stock-specific basis. So, active times are possible even if the indices range. Last week, I mentioned that market attention may shift to mid and small-cap stocks. I continue to hold that view for the week ahead as well.
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.
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