Market Technicals: Bulls Continue To Be In Control Of The Trend
The momentum readings have reached overbought status and some of them have already started cooling off, writes CK Narayan.
We were looking for further gains to be made in the new Samvat and the markets did oblige. Going to the doorstep of the 13K level for the Nifty and almost kissing the 30K level for the Bank nifty, the price action kept the flag flying for the bulls. Undoubtedly, the expectations were higher, but one couldn’t hear much complaint with what transpired. We ended the week with continued expectations for more gains in the week ahead.
Here is how the tote for the index looks so far. Table courtesy Neotrader, my specialised analysis, and trading software.
The figure for the week may look a bit anaemic at 0.51% gain but looking at the solid 10.34 month-to-date figure one should feel more than satisfied with the progress. The Nifty has now moved to a yearly gain of 5.5% as we reach the end of a rather tumultuous year. The next table shows the Ichimoku levels on the daily charts, which gives us an idea about the strength of the trend.
Several things emerge from this table. One, the trend is really secure and well! The cloud (SSA and SSB) are placed comfortably distant at well over 1,300 points away. So, even serious declines are not going to dent the main trend! Next look at the Kijun level at 12,250 areas- implying that dips into those zones can be bought. Of course, this level will rise during the week ahead and hence that is a buy-dip area for the week ahead. The nearest buy point is the Tenken line that lies at 12,719 at the start of the week. Generally, sharp advances such as the one we are experiencing currently seldom break the TS line.
Hence the first buy-dip point is not too distant from where we have closed for the week.
The question though is, whether the market can see a reaction? For answering that, perhaps these special momentum dials from Neotrader can help.
What these dials indicate is the status of multiple momentum indicators taken together. It can be noted that in both multi-day and positional or multi-week time frames, the momentum readings have all moved to overbought areas. So there is a hint of warning here.
The dials below show the potential for reversal of these trends and here we can note that the multi-day trend exhaustion dial (bottom left) has already flipped back below neutral suggesting that the trends on the daily charts are now getting overextended. The positional trend exhaustion meter represents the weekly momentum indicator readings and here the readings have reverted back to neutral. Combining the two we can state that the momentum readings have reached overbought status and some of them have already started cooling off.
Ultimately, however, price action trumps indicators and so long as prices don’t falter much, we can retain the bullish bias in the market. Here is a look at the potential supports and resistances that can be mapped using the multi-pivot map found in Neotrader:
The chart shows three different time frame pivots clubbed together so that we can draw conclusions quickly about potential supports and resistance ahead of us. The first thing we can notice is that the current prices are well above the last resistance monthly pivot (top right) and that shows the trends to be still bullish. Second, we find that the R4 of monthly pivot coincides well with the weekly and daily pivots (centre, near S1), and that makes for a possible good support cluster near 12,750-70. Ideally, therefore stops on long positions in the Nifty should be set here and buy-dips should be attempted here. Break of the same with some force would be a signal of non-bullish intent ahead. So long as that holds, we can look above for confluences of resistance pivots. Here we find two confluences at 12,980 and then at 13,080 levels. So for now, we can assume those to be the resistances that can be reached.
So there you have it, the relevant levels to work with for the week ahead. The market is currently taking its lead from the Nifty with other elements being a contributor and following the main market trends rather than setting out on a different path. Break of the first support confluence would be the first warning salvo, and hence we should be paying good attention to it. So long as that it is not troubled, the higher levels ought to come through smoothly.
CK Narayan is an expert in technical analysis and 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.