Nifty This Week: Technical Charts And More – Look At Range Or Trend, That Is The Dilemma

A comparison with Bank Nifty moves is worth making. Lots of people are still quite bullish on the Bank Nifty, sometimes quoting private banks and sometimes PSU banks’ performance to buttress their arguments.

If one takes a six-month chart of the two on a percentage scale, it will look like what is shown in the next chart. October was the only month when the Bank Nifty did great (the Nifty was no slouch either) but that ended with the surge of Oct. 25. Since then, the Bank Nifty has been sliding at a faster pace and has also eked out a clear lower top-lower bottom pattern indicating a short-term reversal while the Nifty is tending to move more sideways.

There are takers for both indices and they give good opportunities for all index traders. The is almost double or more, the per-day swing (for the same percentage of volatility in both) is greater in the Bank Nifty compared to the Nifty. This gives an optical illusion of the Bank Nifty being a much more violent instrument. But this is only for those players who have very low capital to trade, just because there is a quantum of swing (not percentage). As the previous chart shows, the smart set has already moved from the Bank Nifty to the Nifty. The market is about making money, not blind plays. So one has to keep eyes and ears open to what is happening. Right now, the Bank Nifty is simply not happening.

Whenever we doubt our convictions, we should raise our perspective to the longer term. The ideal thing to do is to keep looking at the weekly chart. See the next chart. It is the weekly Nifty with a support trendline drawn. This line has remained undisturbed for over 18 months now. There have been so many times through this period that we have had misgivings of some nature or the other. But look at the trend, its run has been pretty inexorable so far.

This picture is what gives confidence to us that there is still no problem with the market even after reaching such levels. Foreign players have downgraded (Goldman Sachs being the latest), domestic fund managers have tried talking it down, operators run a scare every now and then... all to no avail. The market just gives a few days of dip and then is back up again. Of course, it is going to turn down some day. But why stay away in fear of that in advance? All you do is miss out on a lot of good moves.

As a part of a Diwali exercise, this year I decided to call everyone to wish instead of sending them a WhatsApp message. To my surprise, the feeling I got after speaking to many an old-timer of the market (who are fully active in the market) was that many of them have taken some money off and are playing the game cautiously.

The newbies don’t know it differently. For them, the market just does one thing which is come up from minor reactions. So they are happy to dive in every time it does.

The Diwali conversations were certainly revealing. From a wish-conveying exercise, it then became a data-gathering exercise to establish the sentiment.

So, how now brown cow? Well, the next chart of the daily Nifty tells a story.

We have the most recent support trendline broken and staying so, as conveyed in previous columns. But we also find that the thrust of Friday has managed to challenge the short-term decline of the past couple of weeks. No doubt, prices have to continue higher for this to become a reality so that is what is awaited in the coming week. Supportive of that possibility is the finding of a Positive Reversal pattern on the RSI during the recent fall and that being followed up with a light divergence pattern in more recent times.

Earnings season is drawing to a close and most of the water is already in the well. Now, it will have to be something else to drive the trends. The taper stuff from the U.S. Fed has also played out some. Oil is still bounding higher and causes some trepidations as far as the macro goes. The Dollar is springing up from support against the Rupee. See both in this chart.

So, I really don’t know what’s going to send the market higher. This harks me back to a previous week’s conclusion, that the market may well get into a consolidation zone that is wide and keeps everyone guessing. A sideways zone is always tricky. If it is narrow then everyone feels a breakout is imminent and people take sides about which side the breakout shall occur and wait for it. But when the range is wider, it becomes a bit iffy. Mainly because the wide range creates an illusion of a trend in the making and gets many traders in, anticipating a bigger move. But once a range sets in, it is deceptive.

Since we have already tapped down into the lower end of that range one can certainly keep a stop below the range low and attempt longs, aiming for the higher end of the range, remembering not to get carried away in case it does reach the higher end. At the same time, any break of the lower end of the range must be looked at with suspicion and would need some confirmation of a break – if we are going to range.

So, it’s going to be a bit tricky. Time to be somewhat watchful about the proceedings and expect some heightened volatility. If we are ready not to be fooled, chances are lower that we will be.

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.