Friday turned out to be a rocking day and came as a big relief for the rather beleaguered sentiments across the week. Shortened by a day owing to the I-Day holiday, the NSE Nifty 50 pulled itself up to finish near the top of the week's trading.
Chart 1 details the recent moves and some relevant gaps from the past that will have a bearing on the Nifty in the coming week. We can note that there was a gentle upward slope to the recovery after the slam of Aug. 5, creating minor higher bottoms along the way. That itself was a hint that recovery was in progress.
In earlier letters, I had indicated that Aug. 5 was the first of the turning dates for the month and, therefore, the recovery from that low hinted at a recovery. Friday's action has brought prices to the level of the first gap.
Now's the crux. Will there be a follow-through action in the next week that can carry the Nifty towards the second gap? If it happens, we will all be happy chappies because that would mean hoisting the index all the way to around 25K! Nice to contemplate for the moment.
What can spoil that scenario? Answer is very simple — a failure at the first gap area — meaning current levels. So, if the market doesn't carry on further on the rally attempt of Friday, then you could be staring at a retest of the lower supports. What then — back to the 24,200–400 area? The rising channel will increase the support zones a tad higher from the previous week, after all, right? Hopefully.
Why this scepticism, one may well ask? It is a simple defence mechanism. If what should not happen occurs, then we know what we want will not happen! That is Charlie Munger’s inversion theory at work here!
Also, I am being sceptical because the biggest chunk of the Nifty weightage — the banks — are still struggling. See Chart 2, the Bank Nifty (30min).
Here, we don't even have a higher bottom in intraday charts! And there are multiple overhead gaps and prior swing resistances to halt progress.
It is evident, therefore, that the work is cut out for the bulls, and it is not going to be an easy one. Can they make the effort? It's a wait-and-see time.
Another reason for scepticism is that the earnings season has pretty much run out now. While it did not clobber the sentiment any, it hasn't lit up the Street either. If local triggers dry up, then the market becomes sensitive to overseas inputs. That would mean volatility. And that, finally means, difficulty in smooth trading.
The daily Ichimoku chart (See chart 3) of Nifty is at an interesting stage right now.
Friday's trade is trying to rescue the CS line from entangling with the prices. If successful, then it will point to a trend emerging again. As will clearing of the TS/KS area. Based on this, next week trading is going to be key to whether the bulls can recapture the trend.
If the attempt does not happen, then the entanglement with the prices shall occur and that, usually, leads to consolidation in prices. In that case, the breakout of TS-KS lines shall also fail and then we would be staring at some slide. But the good news here is that the Ichimoku cloud is nice and thick and should offer support. Hence, no danger of big declines right now. Like I said, an interesting setup.
Sentiment may be slightly stirred but not shaken yet. Evidence is the continued listing of IPOs at a premium (eg. Ola Electric) and the frothy SME. The SIPs continue at a high pace, so money flow is still patent. The FIIs are blowing hot and cold but rebalancing stuff is in the air again and that will draw some flows towards the market. New IPOs are lined up too and there is no dearth of the NFOs. The DIIs are quite active and HNI money is waiting for trend revival to get back in. All together, these point to the cloud functioning well to halt any declines, if that may occur.
The week saw good action again in the IT sector, thanks to revival of trends in the US. Alongside consumption, FMCG, autos, etc. were also in good shape. Leaders from these have some weightage in the index too and hence, continuation of upside action here can create an upward draft for the Nifty. So do keep track of this space too.
Rounding up, matters are a bit tentative, as explained above, and hence, we go with an open mind into the next week. Bias is for upside but we wait for it to get proved because the speed of advance may also be not too high, given that there are overhead resistances.
So, even if the upside gets confirmed, we should continue the practice of buying intraday or intra-week dips rather than chase breakouts. In the event of failure, we should move to the sidelines and attempt to buy only lower. Shorting, if any, is only for the experienced. Else, to avoid that yet. With triggers drying up, expect a tendency to consolidate than trend.
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.
Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team. NDTV Profit is a subsidiary of AMG Media Networks Limited, an Adani Group Company.
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