Nifty This Week: Technical Charts And More – Stay Alert, Bears Are Still On The Prowl

Just as we were all getting ready to venture out, with many having done so already, the advent of the Omnicron Covid-19 variant is seeking to drive us all back indoors. At least, that is what it seemed like. Even as people didn’t really panic, it seemed like the media certainly had pressed the panic button, and virus-related news—that had generally receded quite a bit—suddenly made a sharp comeback on channels and newspapers. Markets never like any kind of uncertainty and respond in the same way every single time, with a decline. We had discussed this over the last two weeks and when the market started off weak, yet again, on Monday of this week, it seemed like there is going to be more of the same. This sentiment was buttressed further when the 17,000 level was violated. There were enough cries of ‘more’ and several lower targets began showing up in WhatsApp or Telegram chats. But as ever, the market always halts when the chorus takes over. Trapping several over-excited traders at lower levels on Monday, the market pulled out a three-day rally that ended with a dip on Friday where some misgivings returned. Pictorially, the week moved like this..As can be noted, it wasn’t exactly a walk in the park this week. Before you realised it, the market was turning around. Doesn’t exactly make for comfortable trading. Consider yourself lucky if you got out with your wallet still in your pocket..The weekly candlestick pattern was shaping up well before Friday’s dip spoilt the set-up. The relatively high volume bar for the week coupled with the candle pattern can make for a possible ending pattern. This is meaningful only if there is an improvement in the coming week. But see the bright side of that, at least you know what to look for when trading starts Monday, right? Now, what are the odds on that, one may wonder?.Looking at the pathway chart again, it is evident that a higher top and bottom have been formed..So two swing points for reference crop up, the high at 17,515 and the higher bottom swing low at 17,002. Now that is a wide range (all of 500 points) but that is par for the course for a week’s trading. So now we have defined something additional for readers to watch out for, something more pointed, so to speak. Now, if I embellish that intraday chart for the last week with a pitchfork tool (Schiff), then this is how it would look..The slam into the top of the pitchfork channel is certainly a downer, meaning that a high is possibly made..So now, the lower pitchfork channel is the key to holding the uptrend and that starts the week at 17,160. At the time of writing, the SGX Nifty is already nearly there..Now we may have to wait for Monday morning’s price to decide on this issue but another higher bottom here will certainly help the cause of the bulls. If it slips, then the next lower support level at 17,000 would be open for a retest.But the bulls certainly don’t seem up to the task, are they? Here is an update from the earlier week’s chart, the one using Heikin Ashi candles..The last time the prices were resting on the long-term support trendline. Now they have gone under. Not exactly good news. The RSI is still in a good shape but it is now giving up the overbought zone. Not really a strike-out that one but a change from the ongoing pattern of the last 15 months. That ought to count for something, don’t you think?In the column of Oct. 2, I ended with this warning, “time to stop being complacent for now.” Looking back, that seems to have been an apposite warning. But the market feinted, had us off our footing a wee bit in the letter of the following week (Oct. 10) but the trend slipped once again by the time I wrote this in the column of Oct. 30, “Time cycles have November leaning towards being a down month and possibly December too. I would want to watch the high and low of the first week and choose to go with the direction set by the prices after the first week. Not expecting much on the upside so maybe for now the 18,600 area is a top for the balance portion of the year.”.The point here is that the market has been signalling reasonably clearly that its intentions are leaning more downward than continuing higher..Hence, the second bearish candle in the third chart is actually reiterating the downward intent of the Nifty. So, whatever arguments we may try to make in favour of an uptrend emerging have to be done so with a good lacing of salt. Or put in other words, as of now we may look for some rise but we should also be ready—more than ready, actually—to jump aside soon as we sense something amiss. Since the bullish signals are mild, that shouldn’t be too much of a problem. We have two definitions of lower points of reference that should be watched rather closely (17,160/17,000). If the Nifty is on a weak wicket then there has to be supporting evidence from other indices too, one would expect. Well, it is not exactly the same but most of them tend to follow the pattern established in the Nifty too, only lagging it a bit. So one could say it is, using a colloquial phrase... a fifty-fifty thing. What stands out in weakness is FMCG, where clear evidence of profit-taking is visible. Some heavies in that list for the Nifty, please note (Hindustan Unilever, ITC, etc.). Battling against this weakness is the continued strength in IT that refuses to cede any ground yet. Big weightage stocks there too (Infosys, TCS, etc.). So not altogether a washout as far as the sector indices are concerned, I would think. Final word? Touch and go. Since evidence is beginning to pile up, slowly albeit, I would want to be alert for mishaps than retain the earlier complacence that market trends will pick up from dips. Stay alert..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 – Stay Alert, Bears Are Still On The Prowl

Any arguments we may try to make in favour of an uptrend emerging have to be done so with a good lacing of salt, writes CK Narayan

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