Nifty This Week: Technical Charts And More – Will Scepticism Keep Carrying This Market Higher?

This week’s trading was far better compared to the earlier one. Last week’s column had advised some caution as the bulls were required to do their bit and it was a bit tough. The lower inflection point was given as 16,400. The low for the week was at 16,392, so it was evident that the bears ran out of conviction just around the projected low zones. The bulls were resilient enough to manage to contain the slide and as a result their license to take the market higher was renewed, and we witnessed further new highs and a push past 16,700 levels too. This ought to produce some fresh bullish dominoes of sentiment and as the next time-cycle is a bit further away, there ought not to be much of a problem to continue.For the week we saw a rather weak start that scared many into a small panic that the jig is all up. But yet again, the bulls were up to the challenge—or perhaps, the bears chickened out after some minor success—and improvements occurred over the next sessions of the week. The progress of the week is shown in the chart..The market was mainly looking west for some inspiration in the last week. While some fulminations may occur with the U.S. Federal Reserve’s plans to taper, when and how, such events get overwritten in the local trader’s database very quickly and life will be back to usual. News and events are always random inputs into the market trend that are used by participants as an excuse or reason to do or not do something. By themselves, they can achieve nothing. It is what people feel and do with the news or event that makes it important or unimportant.The earnings season is drawing to an end and the movement related to the quarterly numbers is more or less done. That has produced a bunch of winners and losers. Once that gets done, the market becomes bereft of news triggers and starts relying on external inputs. This creates some additional volatility, because many of these triggers are difficult to judge in terms of their impact by retail traders and therefore they get into following the lead of prices rather than set some path of their own. Now the next set of results will be only in October, and therefore for the next one month we may be victim to some volatile moves..At such times, it is best to reduce the activity some and seek to pick only the ‘high conviction’ items (assuming that such a thing exists, of course) to participate in..Let’s take a look at some sector layouts to see if something can be spotted..Sector performances were mixed. Among the ones that have been outperforming the Nifty are metals, I.T., commodities, services, financials, realty, and surprise, surprise, PSU banks. Not seeing private banks in the list is certainly surprising, so we know what is holding down the Bank Nifty. Hence for more gains ahead in the Nifty, the private banks need to perk up ahead. While the broader market (NSE 500, Midcap 150, Smallcap 250), etc are all doing decently, recent trends in these have been a bit soft as profit-taking has certainly hit in this area. A few are shown in the next chart..An interesting aspect of market breadth was seen in a chart compiled by a friend of mine which I am posting here with his permission. It shows the Advance-Decline data over the past 17 months..It is interesting to note that the Advance-Decline ratio is currently at 0.85 which is about the same as it was back in March 2020 when the bottom was made..One of the ways to look at this is that the index may be more than double since that low, but, the rest of the market is certainly not flashing any adverse data signal. If the A-D ratio is still hovering around the same levels, then it may suggest that people have been very circumspect in participating in this market. Hence, chances of being hugely overbought at these index levels seem to be less probable..Now, this is a bit of mixed data. On the one hand, the breadth situation is not so gung-ho but the advance-decline data is clearly showing us that there is no major sense of panic in the market. If we combine the two, maybe we can come up with a scenario that people are still fearful of some declines in the market and hence are not preferring to hold on to their positions.This has two ramifications..First, it keeps the profit meter ticking for most participants as they keep booking out.The second is that it prevents the market from turning position heavy at high levels..The latter ensures that the sentiment remains bullishly biased, which then leads to buying the dips as participants perceive another chance offered them by the market..So, we are caught in some kind of a virtuous loop here. Bullish trends – willing participants – periodic profit booking – shallow reactions – continued fund flow – declines clipped – bullish trends again..How long can this go on? Theoretically, endlessly. But we know that things don’t quite work that way. Sceptics still abound, expecting a crash. I was doing a live chat for a market website last week and a majority of the questions were about how deep the market can fall. There wasn’t a single question about what the higher target of the Nifty could be. That is a signal of some nervousness, and at market highs it is scepticism along with other factors that helps to carry the market higher. So long as there is no overt event (one that everyone can understand to be bearish in import), the loop of buy dips-book profits high will continue. There is no point in trying to second guess or even attempt to forecast such events because that is an impossibility. Hence the best course of action remains the same as it has been for many weeks – be long and go long wherever a setup emerges. Now, it is an individual’s responsibility to know where and when those setups shall emerge. People can do it by themselves (if they know how to) or learn to do it (join a technical analysis course) or get advised (subscribe to a good service) or get a good analysis cum trade software (like my Neotrader software – shameless plug!). This is the way to do it efficiently. Those who shirk from any of these will find the going pretty tough and frustrating. Luck cannot be harnessed. Only skill can be, either your own or borrowed. Remember that always..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.

Nifty This Week: Technical Charts And More – Will Scepticism Keep Carrying This Market Higher?

The market is caught in some kind of a virtuous loop here. How long can this go on? CK Narayan studies the signals.

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