Nifty This Week: Technical Charts And More – Choppy Times As Bulls And Bears Wrestle It Out

So there really isn’t much by way of analysis to present on the week’s data.

The formation of a lower shadow for the weekly candle holds out some hope that bulls may be trying to make a stand, but if they indeed are then they need to make a better job of it. Can they? To get an answer to that question, we need to cast our eye out into the sector indices to see if some signs of strength are beginning to appear over there.

One of the first areas that we generally look at is the banks and finance pack because this had, over time, become the most dominant sector weight within the index. But that preference has shifted over the last few months and now the IT sector has become the top dog within best performing sectors.

We are considering these two because they are among the higher weighted sectors on the Nifty. The next chart shows the extent of this shift. There was a brief period when the three – Nifty 50, Bank Nifty, and Nifty IT indices – were showing mixed trends but this has now given way to a clear preference for IT stocks.

The latter has become a kind of a trading index for option players.

Now the world over, it is tech stocks that have taken centre-stage. The Dow Jones Index’s heavies have almost completely been replaced by tech stocks. But if you look at the top stocks in the Nifty over a ten-year period, we can still note that the same set continues to dominate. It is still a mix of FMCG, energy, IT, financials and banks, etc. Though, recent big IPOs have been majorly from the tech area and it won’t be long before many of them start making it to the indices. Hence the focus may shift to them as well progressively.

Looking at a few other sector indices holds out for some hope. Many of them have drawn to a well-defined support structure of moving averages, RSI levels, and DI+ADX levels. The next chart shows the setup for the Nifty Energy index. Prices are down into the average, RSI is just south of overbought, +DI is nicely holding its dominance yet but now tending towards the 20-25 range. So, everything is, like, neutral right now.

Many of the other sector indices are also this way, with small differences. But almost none of them have turned bearish, despite the 11% drop in the Nifty or the 18% drop in the smallcap index.

As mentioned earlier, the news flow has been intermittent with nothing local. So markets have turned slow. They may remain thus for another week or two.

Next week’s expiry is for the month as well as for the year. Generally, larger positions exist because professionals and institutions play the long-term options. Therefore, there may be some attempts to influence the expiry. So do expect some additional gyrations. Also, with prices having declined some, there could be an attempt towards NAV ramping by some schemes. That may have an impact on some midcap stocks because there is some damage in that area. Hence, there could be higher activity in the coming week, but much of that may be difficult to predict from a directional point of view.

Using some cycle analysis, I find that the possibilities for an up move in Jan-Feb 2022 are high. This could mean that in the new year, foreign portfolio investors may not be sellers—their selling has already slowed down in this week—and perhaps the budget may also be market-friendly.

Hence that is what we can keep an eye on that for building longer-term positions.

Until that occurs, we may see some choppy action as the two sides wrestle to achieve dominance. Earnings announcements will start only in mid-January and until then we may have to bear the vagaries of volatility.

People are already weary of the non-productiveness of the past couple of months (mainly because most are bulls, whereas the bears have had a good time). It is at such times that one tends to make a mistake. There is a week still left to wrap up the year. Let’s try to make the most of it and see what we can accomplish.

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.