Nifty This Week: Technical Charts And More – Create Two Trading Plans For The Coming Week
Every now and then the market asks us to take some precautions. The last week—see Warning Shots Fired—was one such. The idea behind taking precautions is that we can be ready for action if it is necessitated. If we don’t prepare for that, then our actions will get rushed when the unexpected actually does happen. When you are unprepared, you will move fast (because the situation demands it) but your actions will not be thought out. When you rush, results become unpredictable. On the other hand, when you are prepared to some extent, you can both move fast and have thought-out actions. That always results in more predictable outcomes.
There is an opposite to this too. Sometimes we are prepared but still become unable to act. This comes from overthinking. Like, for example, this last week. We were ready for more bearish action from the market but it did not emerge. The correct action at that point in time would be to keep the bearish views of the last week aside and look at the market with new eyes. But many times we don’t do this and get into some extra thought process which delays the action. This is procrastination and it often leads to delayed or even no action.
The formula for success in trading is, therefore, to have the right mix of thoughtfulness and action. This is achieved only through some process that is practiced over and over again so that the action part is never lacking. We can think how much ever we want but if we don’t act then all that thinking is a waste.
So, as usual, let’s see what the market did through the week.
A bit of a zigzag, for sure with a scare induced on Wednesday. But that made for a higher bottom from where the market recovered nicely and headed higher. The fall of Wednesday, in all probability, took out a good chunk of the leveraged position (as usual), leaving the market lighter to run higher later. The finish is impressive, as prices are treading into the territory created on the day of the all-time high (Sept. 27).
One of the points made last week was this one: ‘If you want to find a better path you should be willing to explore a different path’. The better path for the week that has just ended was not to be bearish. Turning bullish would have helped as the index did finish better.
What about the trend break and divergences, etc. that were spoken about in last week’s column? Well, they are all there, all right. On the daily, the trendline is being now approached from beneath and can continue to expect to act as a resistance. The RSI divergence remains patent. To illustrate some more points, this week’s chart of the Sensex is a 60-minute version with Ichimoku added.
On this, we can see the rally that has occurred during the week just ended. I have used the Sensex chart here because the Nifty high was an opening tic and hence the value area of Sept. 27 would not get conveyed well enough. We can see that the prices have now pulled back into the small congestion zone of Sept. 26-27 (circled) and that typically acts as a resistance. But the Ichimoku on hourly charts shows that all indicators are positive and hence we should be looking for the index to attempt to take on the resistance of the lost trendline. There is a pattern that can form but will speak of that if it does form in the coming week. The RSI on the 60-minute chart is not too robust and will need to improve if the prices have to take on the resistance. So what this means is that the trading pattern of the coming week has to set the pathway that we can walk on – meaning, we cannot take a prior plan to the market for the week ahead. But we cannot go without a plan too, right? So we will have to create two plans for the week ahead. The first one should be for the continuation of the move and the second for a failure of the same. The first one is simple, all prices have to do is to retain the current levels and then push higher. This will then create a fresh all-time high and that would be a very welcome signal, I am sure. For the second plan, we will have to wait for a few events to occur. Prices will have to slide to break below the three sets of Ichimoku supports that exist right now, the fall has then to push the lagging line below the cloud as well and create a cross of the T-K lines and finally, create a negative cross of the future cloud. Seems like a tall order, as of now. A very large down gap can create this but that is something that cannot be forecasted. If no big gap occurs, then the chances of a failure occurring shall push later into the week, if at all. Hence it is obvious that we need not worry too much about the downside as its probabilities appear to be lower.
But the market seems to be shifting its focus a little wider though and seems a bit unmindful of the developing tumult in the main indices. After a long time, we are seeing some action return to the PSU Bank index. A nice triangle has formed and seems all set to breakout higher. Component bank stocks are also in a better and we may see some long-awaited action from the PSU bank pack. The next chart shows the pattern in the PSU Bank index.
If PSU banks have come to the fore, the private banks were no laggards either and we saw this index for these stocks push higher too. Now with both the wings of the banking index moving, we should probably see the long-awaited push higher from the Bank Nifty too. The believers in the Bank Nifty were beginning to despair but it seems that redemption is due. It has already moved to an all-time high close on weekly charts. Could the coming week then belong to the banking pack? The next chart is the weekly Bank Nifty picture. A breakout is straining at its leash, it appears.
Another sector providing a strong heft to the main index is Reliance. The following chart shows the Nifty Energy index shown along with relative performance from Reliance. It can be noted that Reliance has been egging the Nifty Energy index earlier too but some of the other components have also joined in now and we can expect the energy area to be active in the coming week too.
Now we already know that the IT pack continues to pack a punch. Results season gets properly underway from the coming week and IT majors are the usual ones off the block first.
Unlike the last week, it now seems like the market has fired up all its cylinders. Hopefully, we shall see them get into a high revv mode and that ought to be fun for sure.
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.