Nifty In Technical Charts: G20 Will Drive The Trends This Week

Writing in the letter of Aug. 18, I had indicated that the market down-move was about to terminate (by Aug. 22) and a low would be put in, that may not break below 19,125 levels and for a rally to emerge from there that can carry towards an index level around 19,700 area. This forecast was more or less on target as the market did start rising from Aug. 22, created a low 19,200 area and then started rallying.

This was reiterated in the letter of last week where the necessity of holding the August-end low was emphasised and to all our good fortune, the market has successfully come through on it. The alert given to the readers would have proved timely, if acted upon, as the market gave two chances to buy, on Aug. 28 and Aug. 31. If one missed these, then one got no entry as the prices jumped with a gap from there and kept up the tempo all through the week just ended. This is shown in Chart 1, the intraday moves for the week.

In the letter of last week, I had also indicated that the pitchfork pattern may suggest that a move towards even higher targets may occur and we saw that the price move carried all the way above 19,900 for the week. For those that timed it well, the last week offered 700 points on the platter.

Views on Bank Nifty were a lot more circumspect and I had stated that stronger efforts were necessary from the bulls in this index. The banks followed the cues of the main Nifty and followed a similar pathway although a bit less robust compared to the latter. Nevertheless, the bank Nifty, too, finished the week near the highs, hitting areas near 45,600.

On the weekly chart, using pitchfork as a trend definer, it is seen that the Bank Nifty has just about saved itself from some blushes. This can be seen in Chart 2. It is obvious, therefore, that the threat to declines can still emerge from the banking pack and hence, that is the area to keep a close watch over the sessions in the coming week.

The lower channel of the pitchfork is around 44,200 and should be kept as a kind of stop area for those who are long in the index.

Last week, I had made reference to a less used index (BSE Momentum) and I wish to revisit it again. It moved quite in line with expectation as can be appreciated in the next chart.

I have highlighted the last week's move and one can note its runaway nature. Here is what I had written about this index in last week's letter and I quote: “But the interesting part is that almost all of them are in very good trends and continue to be so as of now as well. This would imply that this index may have further ground to cover as many of these names are poised at or created new breakouts. This can lead to extensions of moves and since many of them are popular names as well, the sentiment will also be in good shape.”

The sentiment evidently was maximum in this space last week. If one had chosen to focus purely on stocks from this index (where many of them are in the F&O list), there was a big chunk of profit to be had.

This has to be the end point of all analyses. Not only should it enable you to see what can happen ahead, but also be able to point you towards the best way to play it. Our Nifty analysis pointed us towards a rally and we got a brisk one. Our focus on the Momentum Index would have given us vehicles that spurted sharply.

Public sector units, railways and others of such ilk were on fire all through the week. Dull and dour stocks like Coal India became tigers. One of the reasons attributed to this strength in PSU stocks is that there is a great expectation from the event of the week—the G20 meet. Suddenly, there is newsflow everywhere about how they may all benefit with huge orders to pour in post the meet. This brought in the momentum which then brings in the traders, who created the volume, which feeds the momentum ... and the circle goes on.

We all hope that the G20 meet is successful and the whole world turns to India to buy from. But one can’t react as though everything shall happen by next Monday. If there are indeed positive developments, people are already long and will take profits. If, however, the results are unclear, then people are already long but will be looking to reduce. Not the best case scenario, I am sure. However, the event and its outcome will garner a lot of press and TV time over the weekend and will doubtless influence sentiments when we resume for trade ahead.

Still, no signs of any topping or selling emerging. But, important events can provide people with the missing narrative to get them to participate. Let’s see how that unfolds.

For the week, I have taken profits off the table in names that were showing me decent-sized gains. I actually go in a bit light in terms of position into the new week. So, ready and nimble to move. For those who may be holding longs, I would suggest a trailing long stop at 19,200/44,100 as the nearest trip-up points. Nothing has happened to change the bigger picture view of buy-the-dips. Therefore, if you are the longer pull trader, then just allow dips to happen into support where you may choose to add. Will require some mental toughness for doing it though. Active traders and investors, by definition, should be taking periodic profit on their holdings. That should continue. Only then will they generate the money to buy those goods back when a dip occurs.

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 BQ Prime or its editorial team.