Nifty This Week: Technical Charts And More – Just Stay In The Market, Say The Indices
A screen displays a financial data graph. (Photographer: Alex Kraus/Bloomberg)

Nifty This Week: Technical Charts And More – Just Stay In The Market, Say The Indices


The market seems to be playing that old game of two steps down and three steps up. Now, this game is typically played when the market is in a range. For the last several weeks we have been trying to find a way out of this mess of a consolidation but the market has not obliged. Every time it seems to threaten a down-break, something comes along and saves the day. Just as we start hoping for some upside resolution, some bad news rears its head.

The week just ended was no different. People were hesitant at the start and pleasantly surprised when the week started well. But no sooner they made plans to buy dips they got clobbered nice and proper on Tuesday. Swearing loudly, they wanted to short on Wednesday and the market turned turtle on them again. Most gave up and finding the path of least resistance to be upward, the market sped higher, using morning opening gaps as an aid. We have finished decently, with prices closing the gap left on April 12. That is a decent recovery.

But at this level, in addition to that old gap, the prices are encountering a double doji pattern (April 8 and 9) and those are usually a nasty piece of business. The last week’s rally ran slap into them and succumbed.

This is how it looks on the chart.

Nifty This Week: Technical Charts And More – Just Stay In The Market, Say The Indices

Also read: Why Shankar Sharma Is Bullish On Indian IT And Metal Stocks

The chart also has the Relative Strength Index and the Directional Movement Indicator oscillators. Doesn’t look healthy at all. RSI is struggling under 60 levels since mid-March. The negative directional indicator line has also been dominant since then and recent gyrations have not helped, creating just some criss-cross patterns near the neutral level. Worse, the Average Directional Index line is below at 14 and that is a big problem for trend expectations. We don’t want to see readings like these if the index is getting ready to take on an important resistance at the 15,000 levels. They need to be a lot more robust.

Now the tricky thing here is that oscillator readings are derived from prices. Therefore if oscillator strength is to become manifest on the charts then prices have to move strongly. Not only move but also sustain. Then there has to be good volume support too. So those are a lot of asks. This is not going to happen with a single session of robustness. We may probably have to wait for several days for everything to fall in place. Thus, even for active people, some waiting for the set up to form is mandatory. This means not being able to buy at the lowest tick of a reaction (everyone’s dream) but holding back for confirmation of strength returning to the markets and that means buying higher. Probably will happen above 15,100 or so maybe. One has to be okay with that because the probabilities then are so much better.

What is interesting at this juncture is another index that is not spoken about commonly. Here is the chart of the Nifty 50 Equal Weight Index. Take a look.

Nifty This Week: Technical Charts And More – Just Stay In The Market, Say The Indices

Also read: Rakesh Jhunjhunwala’s Views On IT Stocks, Cryptocurrencies And More

Like the Nifty 50, this index too went through a dull time consolidation for the past 10 weeks or more. Now we find that the week ended has thrust higher to hit an all-time high. Will the main Nifty now follow? It should ideally. But let’s not rush to the draw. Let it happen and we can trade then. Here is another chart of relative performance between the two.

Nifty This Week: Technical Charts And More – Just Stay In The Market, Say The Indices

What is again notable here is that the Equal Weight Nifty in blue has been outperforming the normal Nifty 50 depicted in orange. What this says is that the individual stocks of the Nifty if taken in equal weightage, then they probably delivered better.

So clearly, stocks in the Nifty 50 are hinting at new highs.

The number of stocks in action however are quite less and there are metal stocks that are powering away along with a mix of a few others. So, the rest of the market has to still play catch up. Hence we are not too late to the party if that is what someone may be thinking.

Along with this, the Nifty Next 50, the Nifty Alpha, Nifty Smallcap, Nifty Junior, Nifty Midcap, etc are all showing us that the market should head higher.

Emboldened by all these other indices, we can therefore conclude that the bulls are still very much in control. All these gyrations up and down are all happening because of uncertainty induced in our minds by Covid-19 and therefore all dips continue to remain buying opportunities.

So, even if the double doji pattern, the gap area, the supply zone at 15,000, etc. all continue to prevail, for now, we need not feel put out too much. Just use the dips to get in and stay in.

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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