Nifty This Week: Technical Charts And More – Breakout Done, What’s Next?

Well, it finally happened. The breakout to 16,000-plus Nifty 50 levels, that is. The issue was quite firm in many minds and it was more the traders who were in doubt because of the frequent forays that the Nifty kept making to lower levels over the past eight weeks. Nevertheless, the bulls proved to be resilient and managed to contain all attempts to force the market lower. Finally, we did stage a breakthrough even though there was no special news flow on the day of the thrust.I have been maintaining that it will need a big event of news flow to take the markets lower, because of the intense money flow from locals. It seems like the bears just gave up this time – they pushed the Nifty down sharply enough a week or so ago, hitting almost 15,500 levels. This broke support trendlines, former swing lows, volatility stops, etc. but still, they couldn’t force the market lower. I think this is what broke their spirit, that their best recent effort was also not good enough to overcome the willingness to buy at lower levels.If one looks back at the week, it started with a gap up, continued through until it hit 16,350. This was a very nice 500-point move. How much of it did one get? That is the question to ask. Not whether the move will sustain or how far it will go and where is the stop-loss or will it dip or should one do options, etc. These are endless questions and dialogues that many people engage in, little realising that these questions asked—or dialogues engaged or confirmations sought or opinions procured from experts—are all excuses for not taking action when one must. Money in the market is a result of action—whether loss or profit—and not in wasting time.It was after a long time that the market chose to give us a nice and clean move of a large dimension and if we do not take advantage of such moves, it will happen again and again. Everything looks perfect in hindsight. So many were waiting for an upside breakout. A mistake at such times, a bit harder to grasp, is the assumption that smart people have the right answers. They may but there is no certainty that they will. If you engage in debates at times when rapid action is required then the opportunity will be lost.The issue was clear enough and I simplified to something quite actionable in last week’s article. To quote from then - “It would, I believe, take some external event to shake up sentiment to a level where the flow of money halts. Or, the willingness to be brazenly bullish during market dips to stop. Until then all of us have to hold our bearish horses and continue the play the game that is going on. No point in missing out on what may be left. And who knows how much that is?”.The market gave us the answer, it was worth about 500 points in a week..So, now we come to the present and everyone’s doubts on whether the rise can continue. Well, based on the range width the target zone should be around 16,450 area. That is not hit as yet. A long consolidation many times has the potential to go on even longer than the minimum. So there is a possibility of continuation too. Next, no events to disturb the money flow into the markets. In fact, a media report stated that retail money has jumped to a new high, underscoring our theme that it is really retail money that is driving the markets currently, even as FIIs are in a pullout phase. Next, the rise is accompanied by fresh momentum strength..The RSI on daily jumped up nicely while the Directional Indicator line crossed positive and straight away has moved to dominance mode. The ADX line is seen picking up from the low levels that it had reached..These indicate that the move we have seen is unlikely to be quickly reversed. The next chart shows the details of this..Further, the range top should now offer supports to pullbacks that shall continue to be seen. So, such dips should not be seen to be the end of a move but to be considered something quite normal. In fact, many times, the best buys get set up when prices retest a range that has seen a breakout. Hence that would be something to look out for. More, the flow of earnings so far has been quite satisfactory. Of the 838 results that we have tracked so far, 652 of them were seen positive. That is a very high 77% positivity ratio. With these kinds of financial numbers being turned out, the sentiment is unlikely to turn bearish very soon..The top-weighted counters of the Nifty look a bit mixed. If the index has to charge higher then we will need some of these heavies to fire..The banking pack appears tentative as yet, although there was some action seen there last week. Some rebalancing of the Bank Nifty weights is expected and perhaps the market may wait for that to happen. Banking and financials have a very large weight in the Nifty after all, so anything they can contribute shall enable the Nifty to leap ahead. One of the problem areas for opening new positions here is that the chart-based stops are currently far away, below last week’s swing low near 15,500. That is too deep for active traders while it is something that is of use for positional players. Remember, we have consistently been moving this stop higher from the low of 11,500 level -- so that is decent distance travel for a trailing stop-loss. The option short calls positions have all moved to 16,500 area and the maximum pain level also moved up to 16,000 -- so the options market too is poised for further gains. But for short-term players, the setting of the stop could be a bit of an art here and hence they should probably follow monetary stops based on their capital. In conclusion, one has to reiterate what we said last week. Continue to be bullish, set a monetary stop if you are a short-term trader, or use on below 15,950 levels. Intermediate trend players can use 15,500 levels as the new trailing stop. On the higher side, we aim for a target around 16,450 now..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.

Nifty This Week: Technical Charts And More – Breakout Done, What’s Next?

The best buys get set up when prices do a retest of a range that has seen a breakout, writes CK Narayan.

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