Market Technicals: New Year Resolutions, And All That...
Virtual New Year’s Eve celebrations at Times Square, New York, on Dec. 31, 2020. (Photographer: Angus Mordant/Bloomberg)

Market Technicals: New Year Resolutions, And All That...

BloombergQuintOpinion

Let’s start with a Happy New Year greeting to all readers. At this time, we all get into making customary new year resolutions. So I guess I should make mine too. I am hoping (yet again) that these don’t turn out to be like those ‘I will join a gym and become fit’ because that, absolutely, tops the sure-to-fail resolutions list, according to me. Close seconds to that would be ‘lose weight’ or ‘spend time with friends and family’ etc.

No, this year I am determined to make some more realistic ones. So I decided to take a different track for 2021. I am going to totally overreach and create some outrageous resolutions! I reckon at least that way the outcomes may be slightly better than with normal resolutions. And hey, if I don’t stick with them, well, then how is it any different from the usual staid ones that we make every year? So here goes.

Resolution 1: I am setting my trading revenue target at Rs 50 crore for this year.

Sounds outrageous enough? Good. It does to me too! Of course, this is going to make me work at much higher levels compared to earlier. I have to find the margins for large positions or find an obliging broker. Latter ought to be simpler I guess. I am going to call in my markers with various brokers that I know. My real goal here is to do about Rs 50 lakh at least. But saying Rs 50 crore sounds good, right?

Resolution 2: I am going to get back into reading voraciously once again.

So I am going to finish 50 books this year. Finish as in really read, not skim through. I used to do this before. I think my friend Prashant probably does 100 and does not need a new year resolution to do it! In the movie The Edge (which I consider to be a great movie for trading lessons, btw) Hopkins says, ‘What one man can do, so can another’. At least let me resolve to finish 50. Realistic goal: 12. But, remember, we are making outrageous resolutions.

It is time for me to stop I guess. Even thinking about just two such high goals is making me dizzy. If I add to the list, then I may well slip into a coma! Then what shall become of this weekly review of markets? So out of considerations of my duty towards readers, I have to stop resolution-ing. And return to review-ing!

After scaring the bejesus out of us in the last week the bears once again had the door slammed on the foot they were trying to get through it. Nursing a very sore foot, they have now retreated to the side-lines. Bulls, meanwhile, are salivating like a dog-with-rabies and crying Land Ahoy once again. Never mind the fact that they were neck-deep in water barely a week ago. But that is the nature of that beast. Never low on positive energy. Not to mention the I-got-your-backs-fellows pumping by foreign portfolio investors that continues. Like we discussed before -- as long as that tap is still running there is a very low probability of the bears making it. All the bears can perhaps rely upon is the periodic panicking of bulls.

The last two ‘corrections’ have been one-day affairs.
Market Technicals: New Year Resolutions, And All That...

The first was in November and the second was in the last week. Both had a decent amount of volumes accompanying the decline so that would mean a lot of position shedding, making the markets a bit light. The volume on the following day in December was a lot higher, meaning that traders had already learned a lesson from the last outing in November and scrambled to get back in the game after being gypped into selling. Recovery was similar, with a series of small body candles, punching new highs.

It is important to note the size of the candle body on the chart. The consistent smallness of the body size would mean that the scepticism continues to be high so perhaps the element of day trading would be very high. People are participating but seem content to take their profits off. Thus the market is still vulnerable to the sharp corrections as earlier. For a change in trend to occur we need prices to move for beyond 2-3 days in time and fall more than 2.5% in extent. This will create the first ‘overbalance’ that WD Gann had discussed in his course. Until that doesn’t happen, the bulls can continue with their play.

The next question of course will be, how much further. This is an exercise that we all engage in and mostly it is to reassure ourselves that we are not going to be the patsy-who-bought-the-top! Not that it ensures we will not be the patsy but it does fool the mind some. Ultimately, one should realise that these are all guesswork. By using the charts which are real, we try to keep the subjectivity down. Anything else like PE and stuff are only truly guesswork.

So, using Fibonacci projections and Pitchfork channels, etc., we get immediate targets of 14,186 and 14,300 as the next numbers. Or thereabouts.
Market Technicals: New Year Resolutions, And All That...

What about the downside? The median line of the pitchfork ought to be a good level – around 13,900. The concentration of Put OI around this strike also lends its weight to the support zone. This will be the first hint. Then of course we have the price and time overbalance that I have discussed.

The year end did not seem to make much difference to the FII fund flow. I think no one would have moved away from markets as every market in the world is on a heat-trip. So, the bull vacation can take a back seat I guess. Still, one should continue to keep an eye out on foreign flows as we move ahead.

The other item to keep on the radar is the Dollar Index. This is something that can move markets across the globe and across asset classes.
Market Technicals: New Year Resolutions, And All That...

We can note that between 88-50-89 the DXY is set to run into a support cluster. 88 is also a long term support pivot from the past. Hence it is possible that the Dollar may now find support emerging or considerably slow down its pace of decline. This will have an important bearing on the Dollar carry trade.

So there you have it folks, the trade (continue long) the targets (14,180 first) the nearest stop (13,900), and the things to watch out for (FII flow, overbalance and DXY).

Now I have to get back to my resolutions. Oh! Day One of the year is over and I have a paltry Rs 4,200 to show for it! Didn’t realise when I made the Rs 50 crore target that it would mean Rs 19 lakh and change every day of the year (assuming 265 trading days)! Phew! That’s going to be tougher than I thought it would be. Hmmm. But I’m not going to change my resolve on the first day. Hell no. Even though it’s a sobering thought to know that Monday’s target just upped itself to Rs 38 lakh. Should I rob a bank, maybe? Suggestions welcome…

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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