Nifty In Charts: Stay Away Or Stay Long

The market has been behaving as per expectations and as forecasted. Two weeks ago, I had stated that we could see a reaction till 21,900-22,000 area and that this would occur by around May 14. A rise was forecasted from there. So far, the market has done precisely that. It repeated the 1,000-point decline that ended precisely on the 13th. It scared the hell out of some people and there was a good bit of position unloading. Reasons were not difficult to find—the U.S. markets and news flow there continue to dither, poll-induced volatility continued, FII selling was brisk and consistent, results season was not exactly lighting up the street, etc. In these circumstances, it's easy to spook people out of their positions.

Here is where some forecasting comes to our aid. Having been forewarned of the possibility of a mid month low, we could have been better prepared for action. When prices bounced back towards the close of the 13th, it was getting evident that the time count was in a mood to check in. This was confirmed when prices opened better on the 14th and rose further. Buttressed by the fact that the Nifty had already hit down to the target zone, it was a perfect price and time match. We were immediately rewarded with a ~600 point rise, with an extra half a day of trading thrown in on Saturday.

In chart 1 (Nifty daily), the action can be seen quite clear, as to how the Ichimoku cloud has repeatedly functioned as a good support to dips. Two other aspects can also be noticed in the chart. The KS line that had been rising strongly, has slipped into a flat trajectory over several months now, signaling the ranging times we have been witness to, since Jan. 24. Prices have been oscillating on either side of the KS line and that continues to point to a ranged market for now. Evidently, the market wants to see through the main event- the national elections.

The second, and more important, element is the negative Kumo cross into the future. After a considerable period of time being in a positive phase, in fact, in 2024 so far, the future Kumo cross negative is being seen for the first time. Is this a warning of some trouble or is it the impact of the sustained sideways price action for the past five months? I would believe that it is the latter and hence would not read too much into the negative cross just yet. After all, the Kumo lines too are mid-point lines and necessarily, have to be impacted by sustained sideways action.

Of course, we shall all feel more comfortable once the future Kumo lines cross back to positive. That will be a fresh indicator of buying, perhaps. Let’s watch for it.

Now that the uptrend is being attempted yet again, the question that emerges is whether it can continue and challenge or even cross over to new highs? Answer to that will lie in momentum and flows. Right now both are stalled. Unless there is a decisive turn in either, or both, prices may continue to be in a range. The upward bias will continue because there is still no desire to move out of holdings by the majority of the market.

At the moment, the momentum situation is still undecided. I have already mentioned in earlier letters that the longer term momentum is still quite positive and it is mainly the daily chart momentum that has been fluctuating for a few months. Price action is once again threatening a breakout higher. So, we keep coming back to the same point- prices willing but momentum and flows are not. Here we are again, back at the same place. Therefore we have no choice but to wait for the market to show its hand. The bias however, continues to point towards a higher move.

Can we get that push higher with about a fortnight to go for the results of the election? It is possible, because, every attempt to influence the sentiment, to talk the market down, etc., have not succeeded. All the rhetoric piled on by the opposition is not having much impact on the trends. Plus (Union Home Minister) Amit Shah’s importation to buy stocks before the results may actually come true! I confess to being an unabashed BJP supporter and therefore my views here may be coloured. But I read patterns and to me, the patterns are clearly indicating that the market wants to go up rather than head down.

22,500-700 has got built as an important area of supply in the short term and therefore, a decisive push past this zone would shift the tide for sure. The supply dries up (or, demand comes in) around 21900 zone. So, we have a definition of the lower area where one can take a call about the continuation higher. With the boundaries well defined and not being too far away from where we are currently, it is worth running a risk of holding long or even creating fresh long.

Bank Nifty still drags its feet so any improvement therein will lend a big helping hand for Nifty to higher. However, the converse here will not send Nifty lower as there is a reluctance to sell Bank stocks in any aggressive manner. On the positive side however, is that several sectoral indices are looking positive at the end of the week. If we see some expansion in breadth and the sectoral indices start performing, then too, the Nifty could get a collective leg up.

Summing up, the coming week or two would be crucial for the much awaited upside breakout. We need to be on the alert about various facets and that ought to be a handful. Two choices for action here. Sit back and allow matters to unfold into some clarity. Or, play bold, be long or go long. I still don’t see any case for turning bearish here.