As weeks go, the one just ended was a good one, with the major indices climbing all five sessions, poking into fresh all-time highs. Sentiment was no doubt buoyed up, the markets made it to newspaper headlines and generally, everyone seems to have had a ball. The weekly charts also turned pretty solid, especially for the Bank Nifty, which notched up the second successive weekly strength candle.
On the other hand, the Nifty resolved the three-week small body candle affair with a decisive upward thrust candle for the week. So, despite many misgivings, the market has decisively answered the nay sayers. Chart 1 shows the Nifty strength candle of last week.
Interestingly, one of the features of last week market was that the indices were up but a lot of stocks held by traders were not up! This clearly indicated that the rise was a lot broader based and this is also borne out by the larger gains made by indices such as the Nse500 or the AllCap Index etc. This is certainly good news because for a bull market to continue, breadth should be as positive as possible.
Chart 2 shows the Bse AllCap index, with a large-bodied candle for the week. Notice also that the index has been rising consistently in contrast to the hesitant rise of the Nifty (marked in Chart 1 above).
But what is even more interesting from last week data is the total volte-face by the FIIs with their index longs. They moved from deep short positions at the start of the month to deep longs by the end of the series! This is one of the largest long positions in recent times, I think. Chart 3 shows this change. Usually, when FII longs go to high levels, the market doesn’t move up much from there. Will this pattern repeat this time too? We will have to watch for this.
Another interesting element on the options side is that the PCR has shot up to 1.5+ levels. This also shows some untenable levels reached by this ratio. Generally, levels above 1.60 are found to create pullbacks in the Nifty. Chart 4 shows the rise in the PCR during the last one month.
A third element is that the call shorts now are seen at 24,500/25,000 strikes- i.e. significantly higher than the current levels. Looks like some hesitation from sellers to take a bolder stance and that may point to some overdoing of the bullish sentiments? Collectively, the derivative picture is not adding up very well for a continuation of the uptrend without some sort of a pullback.
On the momentum front, though, there seems to be no letup, however. The momentum set up is shown in the chart below.
The RSI is ticking higher with the prices. The DI lines are started moving apart and establishing bullish dominance ever so slightly. On the Ichimoku chart, all lines are in positive phase. The bulls are taking control after a few months of meandering.
In light of this momentum evidence, we should treat the derivative evidence as something that may be of a temporary nature, which might produce a reaction that we can all use to buy into at lower levels. The recent swing low at 23335 should now provide a decent support zone for us to aim our dip-buys. Below that we may see the support emerge from Ichimoku lines around 22800 area. So, bullish stops may be kept beneath this second level of support. For the Bank Nifty, similar levels may be 51150 and then 48750.
Crossing of 24000 now brings in some new cycle reckoning. The minimum run ought to be towards 224650 area. For Bank Nifty, the next immediate target could be 54300 area.
Contributing nicely to the index rise was the sharp moves in Reliance and a host of other stocks from Cement, Tyre etc. In earlier letters I had mentioned that stock specific action shall rule and that continues to be the case. Last week we had some news flow from the India Cement deal that brightened up the Cement sector, Reliance thrusting into all time highs after multi month consolidation, a good run-in Tire shares etc., keeping the breadth component active and positive.
More such activity is envisaged for the weeks ahead, with interest getting pointed as we near the results and budget dates. Big block deals are raining in the markets and bulk buying from FIIs is occurring. IPO paper too is flying in fast and furious. But there seems to be enough liquidity to absorb these, so far.
So, we need to continue to concentrate on mid and small caps even as we shift some attention to the large cap plays as well. There may be mild pullbacks but these can be used to add to positions or enter afresh at lower levels. The Bull is very much alive and kicking.
CK Narayan is an expert in technical analysis, the founder of Growth Avenues, Chartadvise, and NeoTrader, and the chief investment officer of Plus Delta Portfolios.
The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
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