Nifty This Week: Technical Charts And More – Time To Ease Off A Bit?

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Nifty This Week: Technical Charts And More – Time To Ease Off A Bit?


Another week, another new high! The deficiency of the Sensex not keeping up with the Nifty has been remedied. Only the Bank Nifty is still to get into stride yet. The way things are going, that too may happen soon. The last four weeks have been pretty robust if you see the weekly chart and it would have seemed like a cakewalk towards profits. However, active traders know that it was anything but. Here is the way the week panned out – the chart below shows us that it was a pretty rough week even though it finished well.

Nifty This Week: Technical Charts And More – Time To Ease Off A Bit?

It was quite a ride with Wednesday creating a scare with the sharp fall. But since that turned out to be—ostensibly—on some fresh Covid outbreak in China, the market managed to come back from that dip and then moved higher to finish the week on top.

Last week, we discussed how the Volatility Index, or the so-called fear index, was falling a bit. This continues to be the case. The India VIX has consistently been dropping this month. So far in 2021, VIX has slipped 29% to 15, falling more than 11% in June alone. In April, we had seen a reading of 23. Typically, the volatility index has an inverse correlation with the benchmark Sensex and Nifty indices, which have hit record highs this month. The dropping VIX number indicates that investors do not expect any major correction at least over the next month.

That led to a question last week on whether some complacency had crept in? A low VIX definitely shows that investor anxiety and nervousness have come down sharply from the highs of last year and even from recent events such as the peak of the second wave of the pandemic. With the second wave now seemingly ebbing, the forecast of a good monsoon and strong corporate results are adding to investor confidence in the Indian markets. However, the sharp rally in stocks is not without risk and a low VIX would also indicate that investors are ignoring those risks. That’s where the question about ‘complacency’ was coming from, that risk perception among investors has dropped sharply.

Reduced fear about reactions essentially leads to more liquidity chasing equities, which raises concerns about trends getting rather frothy and overextended.
Nifty This Week: Technical Charts And More – Time To Ease Off A Bit?

Turning to the Nifty again, a swift recovery from Wednesday’s sharp drop only reinforced the bullish credentials of the trend and with prices now closing above the 15,800 levels, doorways to next higher targets at 15,875/15,950/16,000 are opened up.

When the Nifty moved up past 15,525 levels this month, it has crossed important projected resistance levels. Now, this allows longer-term players to move up their trailing stop loss to just under 15,500. The current month's max pain point in options (so far) is also placed at 15,500 and the max Put Open Interest concentration too is seen at this strike price, making it an important level to break before we can consider bigger changes in the trend status.

Moving on to the higher trend readings, let’s recap the longer-term projection given in last week’s article:

In [the May 29] article, I had mentioned that a cycle-high timing is coming up around June 17. The index is also winding higher. Here is a chart of some Fibonacci work on the Price and Time axes. I have used external projections of swings for Price and an Alternate Price Pivot method for Time. We are about to get into a Price and Time cluster very soon. The period starts from June 17 while the price starts from near 16,000.”

Nifty This Week: Technical Charts And More – Time To Ease Off A Bit?

There isn’t any change from that assessment as the trends are moving along expected lines. Using a combination of Gann and Fibonacci calculations, I find that the price target could be in the region of 16,120-16,160. If heightened volatility occurs, there may be a slight overshoot of the price and time window but not by much.

Ideally, this price-time window may produce a reaction. Hence, it is time to be a bit cautious, given the aggression in the market. However, very high liquidity currently drives trends.

  • After two months of selling, foreign investors appear to be on the buying side so far this month.

  • Recent data from AMFI showed that money flow towards mutual funds has increased.

  • BSE data shows that the number of people entering the market is increasing.

All of these should probably point to the current trend continuing further, as liquidity is only increasing. But, the paradox of the market is that at highs, there is never any dearth of money and at lows, money cannot be found!

I would rather wait to get past this price and time window and if nothing much happens, then perhaps choose to return to a more aggressive stance. For the coming week or two, I would prefer to be light on fresh commitments, take some money off the table, and keep activity limited to very short-term trading.

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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