Markets Technicals: Nifty Steady, Action Elsewhere
(Image: pxhere)

Markets Technicals: Nifty Steady, Action Elsewhere


When volatility is centrestage, everything else goes for a toss. This includes analysis, forecasts, stop-loss levels, convictions, and targets. Sentiment gets shaken and all those who were thinking of multiple days/weeks of holding are suddenly watching the screen for the next blip or to set stop loss on 5-minute chart support breaks! This was more or less the scene through the last week when the Nifty rocked markets with a successive couple of hundred-plus points opening gaps. Intraday swings too were large and, unless one was really lucky, extracting some profits out of the market was quite tough. The additional problem was that the bullish overhang to the sentiment ensured that most people went long and as the weekend wore out those were forced out too.

What’s with the volatility? It’s mainly a global thing this time. Started with the bonds, spread to equities and currency and gold, and got everyone into a tizzy. Everyone has some set correlations and they got to work on that (Dollar up – gold down sort of thing). But lately, those kinds of correlations have been going a bit off-kilter. So some subjective conclusions have been added to the mix. And then Powell-speak (or rather non-speak?) got into the mix too. OPEC added its own tadka to the pot with statements on crude that were not too welcome. And there you had a cauldron that was not to most people’s liking. See the chart below for what transpired.

Markets Technicals: Nifty Steady, Action Elsewhere

And on four out of five sessions, we had large opening gaps compounding the confusion.

People are clueless largely about what connects to what, the world over. So they read what others have to say about such connections or simply follow the leader – which is the price. Everything is okay when matters are playing out smoothly. But there is hell to pay when prices get very shaky. Like the way the week ended. At times like this everyone has some opinion (which is mostly second-hand) but no one is quite sure of it – mainly because it is not their own!

So, when positions are held on shaky foundations, what do you think happens when adverse moves hit? Only one way out – exit. Then repent. Then re-enter at unfavourable levels. Then face adverse moves again. Exit. Rinse. Repeat.

At this juncture, the market begins to tap into the next layer of mindset. The weak ones complain bitterly, about how the whole thing is rigged against them, operators, their fate, etc, etc. The hardier ones call up their advisors/consultants/favourite khabri etc. etc. and seek confirmation that what they are holding on to is not going to blow up in their faces. The problem is no one is brutally honest in this market. Mainly because no one wants to get pinned down on something that can be so difficult to pin down. So you will seldom, if ever, get a straight answer. It is like that gig of how a child never gets an answer to important questions in his life. For example:

Child: Papa, why are you and Mama fighting so much?

Papa: Don’t you have homework to do?

So advisors and consultants etc. are also part of the market and by now they know that there is no one right answer! They are also playing the hope game, just as you are. So you get some answer that you probably want to hear (don’t worry, boss, your stocks are going to double next week!) and you go to spend your weekend peacefully.

So, what can be the right answer here? No one knows. But everyone can guess, right?

The brutal truth of the market is that everyone here is just guessing.

At various times these guesses come out right, half right, dead wrong, etc. The one whose guess comes our half-right (or better) more often is dubbed the best. Until he isn’t. And that’s how the game goes.

Funnily, enough, the market seems to be guessing right now too! When normal candlestick charts are not clear, I usually look at Heiken Ashi candles. This is how they look, on a weekly format.

Markets Technicals: Nifty Steady, Action Elsewhere

Two dojis on the chart is a bummer. Shows that the market has been churning for two full weeks now! No wonder money-making was tough! But dojis here cop-out on the forecasting front. They ask you to wait for a confirmation next week. Well, at least, the consolation is that the chart is not giving me some bunkum that consultants or friends may give (however well-meaning they may be).

So I am on my own here, I reckon. Here are my guesses.

First up, the trend is not reversed yet. That would need a break of 14,450. Well, that was easy, wasn’t it? See the next chart about the support indicators.

Markets Technicals: Nifty Steady, Action Elsewhere

Question is, can my trading survive a fall till that? Very few ask this question. Am I ready for that or can I make myself ready for that? It is, like 500 points away from where we are currently. In that fall, how much can I lose on what I hold, am I capitalised for that or not? Can my mind take that much of a drawdown? Will I have the courage to add if it revives from there? Unless I can answer questions like these, one is just a bit of flotsam in the market stream…..drifting along and hoping for the best.

The next guess is on how good is guess #1?

Aha! There I think I am on a more solid wicket! Remember what I had said last week, that the market was probably shifting its focus? See this chart and I think you will get what I meant. In this, I have feature four charts in one: the Junior Nifty (the next 50), CNX 500 (the whole jing-bang), the MidSmall 400 (to get the retail flavour), and the Bank Nifty (the trading sentiment king). Take a look.

Markets Technicals: Nifty Steady, Action Elsewhere

This tells you clearly that there is no trouble in the land! Indeed, there seems to have been some improvements all around!

So, evidently, the Nifty is holding steady and putting about a bit while the real action is happening elsewhere!

And that brings me to the third guess (in the guise of a forecast... clever eh?)

The market should revive from support levels (if reached) or reverse from some supports in some lower time frame. The timeframes of the charts be damned, what is important is that I am stating that it should revive. My actions should therefore be in the direction of my beliefs. This should be: hold your current stuff and seek in the larger market for fresh opportunities.

Accept that volatility is going to whack you on the head a few times (so wear a helmet) but stick with it.

Well, three guesses for a week ought to be good enough, don’t you think? But wait! What if these guesses are wrong? Well, buddy, I did ask you to wear a helmet, didn’t I?

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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