Nifty This Week: Technical Charts And More – Three Trends And What To Do With Them
A dealer is reflected on a monitor displaying a graph of the movement of a scrip. (Photographer: Yuriko Nakao/Bloomberg)

Nifty This Week: Technical Charts And More – Three Trends And What To Do With Them


I could probably repeat the opening paragraph of last week’s review once again because the market continues to do nothing. Do you know what we call a guy who does nothing at all? A wastrel. Well, that is what the market is doing to us – turning us into wastrels! A whole week wasted. Looking back on a Friday evening you realise this so clearly. But while we were going through the week, it seemed like such a see-saw.

Actually, it was. Only, we finished around the same levels. Last week I wrote saying keep the distance, meaning look at the trends from afar. But that is more easily said than done, right? Because, as traders, unfortunately, we have our noses inside the terminal or our screens! There is no way, then, that every move will not look magnified. And those magnified images are the ones that cause horrors to rise up in the mind!

So, Monday’s fall looked like the end of all good things. Just as we were getting ready to bail out, Tuesday showed an uptick. Wednesday was a holiday but we were overjoyed seeing the SGX up by some 200+ points. Thinking our troubles were over, we came to the market on Thursday to buy. But we got slammed there right at the open and had it not been for some weekly expiry-related activity we would have probably gone down for the count. By now everyone was confused enough and hence the market just meandered all through Friday.

There is no problem for those that didn’t participate in all these to-ing and fro-ing. But as traders, we have all chosen to be part of this. So, decipher it we must. Now, I suggest, you go back and read the last week’s review once again – because that said it already. The index simply continued to dwell in the same region that it has occupied for the past many weeks.

So now we have to find a new spin to see where we are headed. Let me give you the answer right away. In the longer term, the issues don’t change from what I wrote the last week. Here is another way of looking at it and coming up with the same answer. I have Ichimoku charts here for you.

Nifty This Week: Technical Charts And More – Three Trends And What To Do With Them

That’s Nifty weekly with Ichimoku lines and a few arrows. Important lines in the Ichimoku system are the two trend measure lines (TS and KS), the rate of change line (CS), and the forward momentum lines (cloud).

Arrow 1 is the CS line and as per its design, it has two dimensions – price and time. The arrow vertical is price and the horizontal arrow is time. Without going into details of this, I state that there is plenty of room before the rate of change indicator is to meet with trouble. The second arrow points to the TS line and in any reaction of a strong trend, it can be the support. Currently, this is at 13,500 – not too far from the previously discussed swing low of 13,665. The third arrow points to the cloud and that is a far distance from where we are today, being at 11,300 levels. The cloud is the next big support if the TS breaks.

So, the upshot here is that all supports or trigger points for change of trend are far away. Hence there is no danger of the trend changing to bearish.

Good news, right? The answer is yes only if you are a long-term player. But for those that are not, this can be bad news. For the simple reason, that if supports are far away then there could be big slips that might prove to be damaging. One can argue that you can turn around and trade short. But truly, how many people even know how to short the market? Very few, really. One of the telling points to note here is that the KS line is violated (this is the light blue line tracking the prices closely) and in a very strong trend (such as the one we are been witness to for a year now), this break suggests a slowing and a possible pullback.

There have been a couple of occasions during this rise when the KS line has been violated but market showed no follow through. Could it be the same way this time too? I don’t know. We have to wait to find out.

Stacked positively for a revival is the absence of weakness or big bearish candles on the chart. Voting for negative is the fact that there have been four weeks of tap below the KS. Not good.

Arguing for neutral is also the fact that all these taps have been lower shadow candle affairs.

Can it get any more confusing than this? Well, this conclusion might help.

You have the long-term up, the medium-term wobbling, and the short-term tending to keel over.

So the time has come now to define yourself. No more hunting with the hounds and running with the hares, as the phrase goes. You have to pick your trend here. Else you are going to continue to remain a terribly confused chappie.

For investors, that doesn’t prove to be a problem. They know nothing about trading so their choice is automatic. For the trader too, there isn’t much of an issue - he goes where the price goes. The problem is really for the gang that likes it both ways- have some excitement with momentum while taking positions that are (largely) undefined in their duration. Most of these guys really want only profits and cannot stomach the gyrations that come with longer-duration trades. Everything is TataSky-like (Jingalala) when the trend is nicely up. But once that slips (like the last 10 weeks) they get up the proverbial creek. They flounder the most and lose the most. This is a large bunch mainly because it consists of investors who want some excitement and action as well as traders who feel that they should not be doing it so actively. So, frankly speaking, this is the most confused bunch of people in the market.

Investing is all about stoicism and a Zen state. Trading is all about high levels of activity and energy and excitement. Trading the in-between is actually high art – for you need to have the qualities from both.

Note that all three aspects have to be learned. Investors think that stoicism or Zen status can come to them automatically if they just hold. Biggest delusion. Traders think that if they jump around enough somewhere the bull’s eye will get hit. More delusion. And the middle-of-the-roaders are the worst because they don’t have a clue of what they are doing.

Unfortunately, none of these bother with education. Unless you get trained well in the right art of thinking about the trends and time frames you choose, succeeding in trading and investing becomes largely a game of luck.

I am saying all this because this piece may be read by all types of players. The message should be clear. The market is now asking you to choose your time frame. If you slip now, losses shall occur. Even loss of profit is a loss too!

Therefore, if you are a trader, go both long and short as per the dictates of the short-term charts. If you are an investor, chill because your trend is far away from getting shaken. If you are in the middle, then stay out, because the times are not good at the moment.

Until next week, stay safe. The bloody virus is running rampant.

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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