ECONOMY

Nifty This Week In Technical Charts: Targets Achieved And More…

Unlike the earlier week, this one was a lot more ranged. But as the index managed to tick a bit higher, people didn’t really mind that it ranged. So long as the overall bias was maintained to the upside, most people are happy. When people are happy, the breadth widens and participation increases. This reduces the impact of volatility as prices don’t develop so many air pockets during their moves. Most traders loathe booking losses while being quick to book profits. In the kind of markets we had in the last week, traders got repeat chances to play their favourites and also see their loss-making trades make a comeback to be bailed out near cost. So, all happy-chappies! Here are the moves of the week, on an intraday basis.

The main event for the week was the RBI policy. It came and went and everyone took the 50 bass poit hike in their stride. But something else has been happening alongside and this is shown in the second chart.

It may seem like retail is not participating. But it is evident that the smaller cousins in the index group have done far better than their seniors! So, clearly, some things happening without being noticed? Perhaps, finding foreign portfolio investors back in a buying mood, have domestic institutions now shifted back to buying some of the beaten-down cash group stocks? After all, so many had lost 30-40% from their highs a few months ago and results have been coming in decent and so, they may be perceived as being at value. Institutions often prefer stocks like that for buying. Now here is another chart of note.

This shows the relentless buying by DII over the last year and a half. Chances are that they may be strapped for additional money (unless inflows pick up substantially) and hence rotation may have to be resorted to. Now that FIIs have eased and flipped to buying, DIIs can probably engage in some stock and sector rotation. This would mean exiting from stocks that have given decent returns or where the results have been under par and getting into new names that show promise based on results and commentary thereupon. So it seems some of that has been happening and that is how the second cousin indices have been doing well. And may continue to do so ahead too.

There have been some notable events in July that, kind of, makes me feel more comfortable about remaining bullish. Earlier I was thinking that the market may come down to do a retest and perhaps even break the June low. But that view is now shifting to a more ranging expectation for the next couple of months.

Many reasons causing this shift in expectations. Oil has come off the highs and if 7,100 breaks at the MCX, then it won’t surprise me to see more declines. Our own PMI came in at 56. Now, I am no economist but I know that higher readings on the PMI are something to be joyful about, base effect or not. Markets are taking rate hikes by the RBI in their stride. FIIs have turned buyers in July and continue to be so in the first week of August. Jobless data for India has come in at the lowest in the last 6 months, I am myself facing difficulties in filling vacancies at my own company, The rupee is drifting gradually lower and the RBI and the government seem to be having a handle on it. As I have read, a gradual weakening of the currency is not such a bad thing for a growing economy.

And so on. Multiple items, most of them positive. This perhaps explains the robust trend we have been witnessing. When we spotted the turnaround at the end of June it didn’t really seem like we may have such a strong rally. But the fact is that we did. Q1FY23 results have been largely palatable and have thrown up numerous names for people and funds to invest into. Confidence is coming back to the market. Credit growth for the past month or so is higher than the pre-pandemic levels. NPAs of banks have reduced and with reduced provisions, banking stocks have been declaring better results. FPI allocation to BFSI stock has reached the highest levels since Nov 2021.

There has been some bottom fishing going on too. Just look at the recoveries from the lows of prominent stocks like Paytm, Zomato, Nykaa, Policybazaar, Nazaara Tech etc. etc. These have ranged from 25% to 50%.

These are top names and recent listings. Long liquidation from overleveraged holders is one of the main reasons for their decline. Be that as it may, the bigger point is the willingness to engage in the buying.

Every now and then we look at a sector index where some performance or bullish signals are available. Take a look at the fourth chart 4, showing the FMCG index. Its rise has been smooth as silk and guided well by a 34-period EMA. In nearly a couple of decades, the dip of 2020 was the only one that could dent the average. Talk about trend strength! It is difficult to get another sector that has had such a sustained move through two decades of our markets.

Even recently, in March 2022, prices dipped to take support from the average and have now pushed to a new all-time high. Maybe this move was led by ITC, but who cares? That is just quibbling with the reality of a very bullish sector. Why mention this now? Because, even in this quarter, the results showed strong volume growth! It never stops, does it? You want to be long such sectors. Do you think you missed the bus? Why? People would have thought about five times every few years and here we are, at new highs. In a strong trend, the high is when the market decides to call a high- not you and me. In July, FPIs invested the most into FMCG stocks! Find good stocks here and play for the long term.

So, is one month of buying by FPIs good enough as a signal of strength? I don’t know but I am happy to see that they bought about Rs 4,900 crore in July and have already pumped in about Rs 12,500 crore in August! Between October 2021 and June 2022, they had withdrawn over $32 billion. The market fell in that time period and now have bounded 2,000 points in a month and a half. Difficult not to see the correlation between FPI activity and market action.

There is just one nagging doubt. Go back to the first chart of intraday action of the week.

The most classical detailing of the conditions for the pattern is in the Bible of traditional technical analysis by Edwards and Magee. But a pattern similar to that is visible. But dealing with it is not such a problem. There is clear evidence that 17,200 has formed good near-term support. So, for those who feel a bit nervous with the highs, maybe you want to keep that as a short-term stop area. A little further away is the nearest gap zone near 17,000. With that as a stop zone, I think, one can still retain bullish views even for the short term, despite the pattern.

Now, what about higher targets? In earlier updates, we mapped the gains up to some 17,400 and we are there as of now. Simple trendline resistance on the weekly chart says 1,7800 is still open. Using a proprietary Fib Ratio method, I calculate that a projected high resistance would fall in that area as well. I get further clustering in the same area by using a two-point extension technical of contra moves. So, that still leaves room to the topside if we wish to play long.

We wind up this week, therefore, with the stop level decided, a likely projected and a sector identified for participation as well. Now rest is up to each of us to carve out our own profitable trades from these views.

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 BQ Prime or its editorial team.



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