Nifty This Week: Technical Charts And More – Look Beyond The Biggies
A set of binoculars stands in front of Niagara Falls. (Photographer: Cole Burston/Bloomberg)

Nifty This Week: Technical Charts And More – Look Beyond The Biggies

BloombergQuintOpinion

Long ago, there was a movie called Cool Hand Luke, and in that there was one dialogue that I can never forget. “What we have here is a failure to communicate” says one of the characters. I think that can very well be said about the current market situation. On the one hand, the market is communicating to us, saying it is not too keen to go higher while on the other hand, the people in the market seem to be saying that they shall not allow the market to go lower. It can be a toss-up here as to who is going to win and for the moment, the market seems to be having an upper hand as it pushes the prices lower to yet another lower low, compared to the previous week. But buyers are up to the challenge as they push markets up from those lower lows.

There seems to be a clear disconnect here between what the market wants and what traders want.

However, so long as they are unable to push the market above the prior week’s high (at the bare minimum), they are on a slippery slope in the short-term. The long-term, of course, we have discussed a few times in this column, and that is still quite intact. But with every passing week if we start nearing those tripwires, then small beads of perspiration may start becoming visible on the foreheads of the dogged bulls. But, that’s for another week. For now, we look at what has transpired. Here is the chart of the action so far.

Nifty This Week: Technical Charts And More – Look Beyond The Biggies

Since the market has been going sideways for a while, I threw in the Bollinger band to check on how the volatility is ebbing. No help, I am afraid. Well, prices are down into the mid-band but that’s pretty much it. The bands are still wide apart so the indicator is nowhere near signalling a low-volatility setup. In fact, we are needing to drop down to a much lower intra-day time frame (not shown here) to find the Band flattening out. So while the mid-band in the daily can offer some relief, we may continue to witness the kind of moves that we have been seeing. Certainly not something to look forward to. So in an attempt to find some other clue, let us go and check the other indices using the same Bollinger Band and see what they show. Here is the Bank Nifty.

Nifty This Week: Technical Charts And More – Look Beyond The Biggies

Oops. Not healthy at all.

We have a nice balloon earlier (strong uptrend) and then that gets popped and now we have very orderly down-sloped bands with the price comfortably hugging the lower half, a clear signal of an ongoing down move for the short-term.

We must remember that Banks form a large percentage of weight in the Nifty and if this is a drag, how can the Nifty make forays higher? But hark! Is that an Inside-Outside pattern that could be forming at the recent lows? Bit of a stretch, I agree, but hey, we are clutching at straws at the moment. If it does become one, then we can start hoping again. So, banks may be something to look at in the week ahead? Perhaps a crackling result or two may do the trick? I took an additional look at the Private Bank index and I find it dropping down into a rising lower Bollinger. This often acts as a support. Let’s see if it does the trick. The PSU bank index is also similar but the levels for support are still far away. So if something has to happen, then it has to be from the private banks.

I.T. is the other big-weight sector. Any hopes from there? Here is Nifty IT daily.

Nifty This Week: Technical Charts And More – Look Beyond The Biggies

Nope. No-go here. A flat trend with the bands being crisscrossed. No help here at all.

The less said about energy the better (Reliance is in here). Not much support coming from the FMCG set either (HUL, ITC, etc. are in here).

So what is going to help out? Well, the metals index is charged up and that is the reason the commodities index is also up. But these are lightweights on the Nifty. You do have the Nifty Next 50 showing some strength but that is a very mixed index with stocks from all over the place. So difficult to see it giving the index a boost.

Then what are people keeping busy with, one wonders? Not difficult to answer. See this chart of the MidSmallcap 400 Index.

Nifty This Week: Technical Charts And More – Look Beyond The Biggies

The only word that jumps into the mind is ‘nice’. So it is evident that people have kind of abandoned the frontline and are happy to seek their fortunes in the mid and small areas. This takes me back to what I had written on Feb. 26. Here is a quote from that article:

I believe it is possible that the large caps may remain in a range for a while as the players shift to the midcap and smallcap stocks now as the main playground...my vote is for consolidation to happen ahead and for the index to maintain a gradual upside bias even as volatile ranges rule... So as long as markets don’t tank, people are happy to participate actively in small and midcap stocks. All the three indices – Midcap 150, Smallcap 250, and MidSmall 400 – have hit new all-time new highs now. Time to shift focus towards those.

It does seem like that is what has been happening.

The market has simply been shifting focus from large caps to mid and small caps. This is the reason why that index is showing such a steady and bullish setup.

With results season in progress, I don’t see any way this trend may change much. Here is the Relative Strength Comparative chart of the Nifty versus the MidSmallcap 400.

Nifty This Week: Technical Charts And More – Look Beyond The Biggies

You can note the consistent underperformance of the large caps vis-à-vis the mid and small. This has now become more pronounced in the last several weeks. We all get distracted by the noise of new highs and the din of TV channels and sometimes miss out on the big picture. Those that heeded the column at the end of February should have profited. If you did, you can always buy me a beer!

So, that’s where we will leave it for this week, with a reminder to stay tuned in to the opportunities that lie in the midcap and smallcap area. On the main board we have to follow a path of short in-and-out forays for trading as trends there are not sustaining. We keep a watch on the main supports that have been mentioned earlier and check how the index fares if those levels are reached.

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.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.