Nifty This Week: Technical Charts And More – It’s Hakuna Matata Time!
The cocktail is getting headier now. Earlier we had alcohol in it that was maybe 12-20 proof. Now they seem to be adding the more potent stuff (40-45 proof). People who enjoy a tipple or two every now and then will know what I mean.
Markets ratcheted higher—there is no other word for it—last week. Except for the slight dip of Tuesday, the trends were straight up. See the usual pathway chart. It can be noted that from Tuesday’s low (a usual weekly shakeout affair that loses the weak hands), the market rose rather strongly for the week.
It was not just the Nifty that showed the aggression. The rest of the pack was in great form too. Here is a random pick of six different sector indices and their moves through the week.
Evidently, the market went up with a great deal of breadth and that is always a good thing for trend sustenance. In the chart, we can see that some mirrored the Nifty while others were more determined in moving higher.
In fact, there wasn’t a single sector index that did not create a new high in the last week, that is how dominant the bullish breadth was.
Truly, it was Hakuna Matata time. Those that have no idea what that means ask your kids about the Lion King.
So, with this kind of breadth and increased momentum, should we not expect more gains to accrue in the weeks ahead? No reason not to. With the index moving to a new high now any reversal is postponed for at least a while. The reason is that for a reversal we need to have a reaction dip, then a rally from that to make a lower top, and then a fresh dip that breaks the reaction low. Now that is a multi-bar move and therefore there is no immediate danger of trend reversals. But we can always pull back without changing the trend. This is the kind of reaction we have been witnessing in the market. As stated in an earlier analysis, no weekly candle low has been broken since the rise resumed from the low in April 2021. That is a six-month run. The main support trendline is now at 16,800. This is the trailing stop for longer-term trend followers.
Last week I wrote about the necessity of planning for the trades. Of the two scenarios, the one for continuation prevailed. Here is what I had written in that context, “it is obvious that we need not worry too much about the downside as its probabilities appear to be lower”. Hence, playing the upside in the last ought not to have been much of a difficulty since we were already ready to do so. All we have to do is to keep things simple. We said last week that all the market has to do is signal us that it is willing to trade above the highs of the earlier week. It did, and fresh buy signals were on. If we could not bring ourselves to buy, well then, that is a different issue altogether and has nothing to do with trend analysis. The psyche needs work in that instance. But let’s return to the same point, of doing the same thing and constantly refining it. The next chart shows the set-up on Ichimoku for the coming week.
Obviously, prices have run a bit in the last week and they have now moved away even from the Tenkan-Sen line (the short-term trend tracker). Four arrows are marked on the chart on the four main lines of the Ichimoku system. All four are expected to act as supports. Depending on the news flow and order flows, the market may respect any of them. But suffice for us to remember that each of them will be a buy point. Now, it is up to you how many supports will you buy. Analysis can point out possible levels of supports. Ideally, in a good trend, prices will not go below the second arrow level (the Kijun-Sen line). The other two are bigger backups. But it is equally possible that the market may not come to visit any of them too. If that, we do what was asked of us last week -- look for continuation signals.
Now people have this constant worry when it comes to all-time high levels. They feel there are no guideposts. But writer and essayist Lu Xun, writing on the power of collective hope, said, “Hope is like a road in the country; there was never a road, but when many people walk on it, the road comes into existence." This is how we have been faring -- we hit 13,000 and then 14/15/16/17k one after the other. Those were all new roads. We walked on them and they became confirmed pathways or roads. But we worried at every stage that the market would collapse anytime. Well, now we are past 18,000. Did the worrying help? We have set up the guideposts below the current levels. Until they are breached, why worry? Hakuna Matata!
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.