Nifty This Week: Technical Charts And More – The Ingredients Needed To Reach All-Time Highs

A trader looks at a computer screen at a firm's trading floor. (Photographer: Akio Kon/Bloomberg)

Nifty This Week: Technical Charts And More – The Ingredients Needed To Reach All-Time Highs


The tone was set right from Monday. Over the weekend, gains at the SGX Nifty had already indicated that we should have a gap-up open. The way the market built on that better open was indeed very heartening. The situation had been similar a week ago and the bullish attempt stuttered and fizzled out. Perhaps people had that in mind or perhaps the positions had got whittled in the earlier week but either way, the path of least resistance proved to be upward as participation was low, and then a feeling of ‘oh too late now’ crept in. But the buyers on Monday were pretty resolute and they managed to carry the Nifty 50 above the 15,000 levels once again. This time, they did it with a lot more conviction.

Not just that, they managed to retain the grip on the market and held the Nifty aloft near the 15,000-mark through the balance of the week until finally hoisting it even higher for a top close for the week. Here is the action of the week, using a 60-minute chart of Nifty Futures.

Nifty This Week: Technical Charts And More – The Ingredients Needed To Reach All-Time Highs

This has made for a nice long body weekly candle and that is something we have been waiting for over the past 10-12 weeks (see the next chart). We had a hint of this two weeks ago too, when a candle of decent dimensions (with body size larger than the average body size until then) but this is the kind of ‘shaved’ bottom and top shadows that ought to do the trick.

Note, however, that prices are yet to cross the all-important value zone near 15,200. Once the Nifty is able to hoist itself above this level and give us a close too, then it would be off to the races.
Nifty This Week: Technical Charts And More – The Ingredients Needed To Reach All-Time Highs

Is there a possibility that the attempt may fail yet again at the resistance? It can if much of the rise of Friday was based on short-covering. Two important things point to that possibility and both are connected to the options market.

Coming into the last weekly expiry, we found that the 15,000 Call strike carried the maximum open interest and hence there was an expectation that the short call holders may be forced into covering. They seem to have escaped in the earlier week and when the market this week didn’t really make further gains after hitting the 15,000+ levels again, the shorts were perhaps emboldened to continue their position. As we came into this week’s expiry, matters remained sanguine and we did see some additional shorting occur at the same strike. Once the market moved higher and did not let go, the latter part of Friday saw some very brisk activity of short-covering and this sent the index soaring.

Adding fuel to that fire was the fact that the Bank Nifty option sellers, who had thus far been enjoying some very profitable times as the prices had remained quite docile, found themselves in hot waters. The index ran suddenly and surged nearly 500 points above the call strike with the highest OI built. This was signal enough for some short-squeeze to occur towards the end of Friday and that activity continued merrily right into the closing bell.

So with the short squeeze applied and alongside, lots of pending longs getting some better exits in other sectors and stocks, it is probable that we may not have enough fuel to carry on. Hence, for continued advances, we may have to see fresh buying come into the market!

Now, that can be tricky. For this, the global markets have to hold firm, and then nothing adverse should transpire through the weekend and some buying pressure has to emerge at the SGX, etc., etc. Not that these cannot occur, but just highlighting that these do need to happen. There is always a distinction between what can happen and what must happen! Fortunately, results flow continues to be reasonably good. The last I checked, the number of stocks with positive profit growth was about 3x of the stocks with negative profit growth. The total Ebitda growth of stocks that have declared results grew some 64% while operating profits also grew a similar amount. No wonder that the market seems more than happy with the results so far!

What about the momentum indicators? We made much of the lack of signals there in the past couple of weeks. Have they improved with the rise of this week? Well, yes and no. See the next chart.

Nifty This Week: Technical Charts And More – The Ingredients Needed To Reach All-Time Highs

A little bit. Like they used to tell us when we were back in school, ‘can do better’. The bad news is that this tentative signal can be easily reversed if there is no follow-through. But it would need positive price action for these to improve. So that is something to watch ahead.

So we shall leave it there. Matters look positive, provided there is follow-through price action next week. The probabilities appear good. A move past 15,200 and an improvement in oscillator readings are needed for confirmation. If that happens, we are likely to hit fresh all-time new highs. Something to look forward to.

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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