Nifty This Week: Technical Charts And More – Bulls Refuse To Give Up

There ended the eighth week of sideways consolidation. There increased the frustration level for the eighth week in succession. In and through the week, the Nifty 50 went for a trip, down into 15,510 and back up till 15,875. Sitting outside it may seem like a nice fluctuation in which one could have made money. But try telling that to those who are involved full-time and you will receive quite a different story.But seen from the angle of the ongoing buy-the-dip story, it would certainly have paid off nicely if one had bought the decline. This was how the week went..So we pretty much came back to where we dropped from. That kind of negates the bearishness of the drop. Would have preferred to see prices scale past 15,900 to be surer of bullish intent but for now we will have to settle for what we got.So, with the index back into the middle of the congestion zone, none of the indicators would have undergone much change. We spent a lot of time looking at several of them in last week’s article. So when none of your indicators change, then there is really not much to comment about the state of affairs except to state that what was valid last week continues to remain valid for the coming week too. Very little to add to what has been said already.So let’s turn our attention to where the action has been in the week ended. Metals completely dominated last week. The chart below shows the move..Now, that is as clean a breakout as you can ever get! And look at the oscillator set up. The long-term trend as measured by the indicator in the centre-panel has been resolutely bullish since May and is unshaken all thru to today. The directional indicator dominance by the bulls (lower panel) is also quite solid and the trend strength has got hoisted even higher in the last week. The news flow out of China came in all positive for the sector and was the main driver of the trends..This is not going to fizzle out so quickly and hence metals may continue to be one of the sectors to watch in the week ahead..Here is another area where no trend misgivings exist. This is the chart of Nifty MidSmallcap 400 and here we can see a smooth run to new highs. No ranging here..If one looks at the chart of the Nifty Smallcap 100 that is even smoother, implying that the bigger attention has been in the small-cap area rather than midcaps. Undoubtedly, people are continuing to pour money into these stocks every week. With the spate of IPOs and many of them having a super listing — Tattva Chintan may have been a record of sorts for listing gains, I would think — continued money flow is assured..In the face of so much money sloshing around, no decline is going to extend much before people come in and scoop up what is on offer from penniless traders..The third area that was working last week was I.T. The spate of good results from many of the leaders as well as the next rung of stocks has buoyed the sentiment towards the sector and even if leaders like Infosys and TCS were not performing much, the others were on a complete tearaway mode (Coforge and L&T twins, etc.). The next chart is the I.T. index weekly, also hitting new highs. The RSI is still quite comfortably poised and hence it does seem like the bullishness here ought to continue. Midcap I.T. is also doing very well indeed..Two areas not working over the last few weeks have been energy and auto. The next chart shows both of them. Looks like the stocks here should continue to be ignored. Rallies can be used to sell..The results flow has been largely positive. Of the 492 earnings declared, we find 381 with positive results and that is quite a number. Good enough to keep the positive sentiment meter ticking as yet. Overall, there is 49% revenue growth among these with 42% operating profit growth.But there is still a curious mix of fear and optimism in the market. Those that are new to the market have no fear. But those that are older players are most fearful. When no fear exists, optimism is the dominant sentiment. TV networks, advisory services, mutual funds, and brokerages are (almost) duty-bound to talk bullish. But prudence demands that we don’t get carried away too. While valuations and technical indicators get swept away by a wave of sentiment, they still do hold meaning. Currently, it is sentiment that is dominating. But underlying it is also a stretching of the trends..The last eight weeks of consolidation may have blunted the overbought readings of the indicators but if one looks at the data, around 15% of the NSE 500 list has RSI numbers above 80 as well as ADX levels above 50 on their monthly charts..These are hugely stretched numbers. But is anyone looking? Not really, as most people are too busy having a good time. Now, one may argue that 15% is not a very large number. Agreed. But if you drop the ADX level measure to being above 40 (which also is a warning-zone level) and take a measurement on weekly levels, then the percentage rises to around 40% of the NSE 500. So there is reason to be cautious. One may not act on it until the market signals it. This will of course mean selling off the highs. But that should be perfectly fine. Only a fool would want to sell at the top. 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 too 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?.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 – Bulls Refuse To Give Up

8 weeks of consolidation may have blunted overbought readings, but around 15% of the NSE 500 has RSI above 80, writes CK Narayan.

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