Nifty In Technical Charts: With Some Help From Friends!

Well, the Nifty Futures hit a high at 25,798 on Friday and closed well too. So, sitting on your longs, even if the first week of September was not so comfortable for longs, would have still paid off nicely!

Even the week gone by was not so comfortable, as can be seen in the intra week chart as shown (Chart 1). It is noted that the first three sessions of the week were rather trying ones as the market went essentially nowhere, as it waited for the Fed action.

Come Thursday, and we had a burst but even that threatened into a fizzle as, inexplicably, the market sold off from a good open. Finally, Friday restored the cheer by pushing up into new all-time highs and possibly restoring confidence in the trends once again.

Writing in that same letter, one of the points that I made was, “What is needed is for us to believe!” I had been writing about the possibility of a melt up and how that is not being considered at all (even now!) and why this was the most bullish factor for the sentiment.

And this, “Seasonality is being spoke of about September being a negative month (mostly), but I don’t believe the events leading up to the new month are hinting at that possibility as of now.” Well, with all indices—not just in India but also across the globe—hitting all-time highs, where are those seasonality guys now? I ended that letter with these words, “There are times to sit tight and there are times to be very active. Currently, it is the first one. Sit on your longs and add on dips.”

The first week of September did prove to be a scare but this is what I had written as conclusion for that week after due analysis. “My upside view is not changed. There shall be periodic interruptions by way of dips, for, that is the nature of the market. One such is going on right now. But I expect that market to right itself towards the upside very shortly. Hence patience to wait this out is called for. In a bull market, buying dips is the way to go. Well, you are getting one right now. Check out your favorites to buy now.”

The Bank Nifty was not pulling its weight back then. Here is an updated chart of the BNF from end August.

While confidence of the weak bulls were probably shaken in the fall in the first part of September, look at the revival in the Bank Nifty since then. The current rise is beautifully held together by a rising pitchfork channel. And by end of the week, it had pushed the BNF to all-time new highs. As mentioned earlier, this show of strength contributed to the good gains made by the Nifty as well.

Playing spoilsport (a wee bit) is the weakness in the IT sector. While the moves may appear to be large when seen on intraday charts, if we raise perspective to the next time frame, we find hardly a dent. See daily chart of IT index Chart 3.

After emerging from a consolidation of about a year, the IT index has been in good trends as value buyers returned to the sector. The recent week’s softness is just a blip at the top. We should be watching for a revival in this zone to add to the Nifty’s strength in the coming weeks.

In the 1969 movie Woodstock, Joe Cocker sang the classic, ‘With some help from my friends’ in his fantastically gravelly voice that I still so distinctly remember from my college days! Well, right now, the Nifty is certainly getting help from its friends!

Well, here is one more ‘friend’ to lend a helping hand. Chart 4 shows the IPO index and one can note how fantastic a trend is being essayed by it throughout. It is pouring IPOs and the responses are tremendous and listing gains are being seen consistently as well.

Bajaj Housing created a record with its recent issue. There was a fear of whether history may repeat from Rel Power issue of 2008 where it created the top of the bull-run, but again, those were held by the skeptics! I wrote enough about those jokers two week ago so don’t wish to reiterate. The stock listed at a significant premium and such listings are stoking the sentiment ever more. The way this index is poised, it can only help matters along even further!

Sentiments (along with liquidity) is what drives the small and midcap stocks and the indices related to them have also posted new all-time highs. Nothing cheers the investors than seeing their portfolio values rise. While there have been select pockets of concern (like defence and PSU), there is still not indication at all of any concerted exits happening. At worst, people have stopped buying these. No doubt, stocks will all periodically get long in the tooth—that is part of the market. But so long as other stocks and sectors are continuing to perform, the money just keeps moving from performing sector to another. So, more friends here too!

Next stop the Nifty is 26,200, which is the target I had given in an earlier letter in August. Therein, I had mentioned a target of 58,000 for the Bank Nifty. I see no reason still for those levels not to be reached. Hence, I continue to be a holder of longs for those target zones. Stops are to be set suitably. Two swing lows back are 24,800 and 24,100. No change in thinking until those are threatened. Drop the doubts. Until then you won’t enjoy the ride.