Nifty In Technical Charts: New Highs Achieved

Everyone is rejoicing and with good reason, too. The Nifty and Sensex hit all-time highs along with many other sectoral indices.

In fact, the small and mid-cap indices hit new highs ahead of the Nifty. It is only the Bank Nifty and IT indices that are still struggling. Perhaps, the Nifty took time to make the grade mainly owing to the fact that the big weights in the index are banking, IT and FMCG names and most of them were struggling to perform. In the meanwhile, the broader-based indices were having a gala time, heading higher comfortably.

Sentiment is governed by where the main indices are. So, it was not unusual to see the sentiment somewhat curbed by the lack of movement in the main indices. They were also hemmed in by not-so-positive feeds coming in from overseas markets.

The Fed keeps the U.S. markets on tenterhooks with the Fedspeak vacillating frequently. But, in the last week, two things happened that helped to shed the conservatism that was holding the indices back. First was the strong economy numbers from the U.S. and the second was the unexpectedly higher GDP numbers locally.

Both these events led to a surge of buying in the market and for a change, the moves in the indices seemed actually owing to fresh buying rather than just short covering. That occurred, too, as the FII short positions were cut and retail also had to cover much. The November series began the month with a low post and finished it with a high post! The 5.5% gain of November has certainly created fresh expectations for December series that began on Friday.

The FIIs begin the month with a 36% long position in index futures as compared with just 11% at the start of November. The options position wore a neutral look though (PCR remained around 1 levels) and was possibly owing to the fact that the poll outcomes would be out on Sunday and since the exit polls were leaning both ways, people chose to cut positions and wait for Monday to clear the air. Monday should probably be a gapped start.

But, readers of this column shouldn’t have been surprised by how November turned out. Writing at the end of October, I had stated this: “November promises to be a better month compared to October and here I would be inclined to buy dips through the month rather than attempt to short rallies. So, that is a total change in strategy... For the four weeks ahead, be buyers during dips.“

I reproduce here the monthly Time Map for November that was given in the first week of November and also what I had written as the forecast for the month.

"For the first week, we had an upside bias that has worked out. For the next week, it seems more like a mixed week. So, one may want to be a bit on the back foot and use dips intraweek to buy in, rather than chase breakouts. Note that stocks may follow a different timetable than the index, but usually, the index sets the tone for the trend overall. The best, it seems, is reserved for the last week of the month."

The rise of the last week of November is really what did the trick. It feels nice when forecasts turn out as expected, as it helps us to plan and execute nicely and reap profits.

Now, the question is where do we go from here? Chart 1 shows a possible projection using Fib ratios. This is pointing towards 20,667/21,158 as the next extended targets.

The trading of last week looks pretty solid as a continuation thrust higher. Current sentiment does not seem bothered about the event due on Sunday. But one never knows. Vix has risen to a recent high around 12% and a gap is anticipated on Monday.

The Bharatiya Janata Party's victory will certainly lead to an upside gap and then, it will all be about courage to buy higher and squeeze off whatever shorts are left in the system. On the other hand, a downside gap will probably lead to a scramble for long exits and there are certainly plenty of those in the stocks area. That may create a limited downside activity.

Chart 2 shows the liquidity created at different levels using supply-demand calculation.

Owing to the swiftness of the rise in the last week, the nearest liquidity support zone is 19,760-19,800 area. So, traders would have to keep their stop beyond this. There is a small rectangle marked in the middle of the chart and this is a price consolidation area which also could function as a support during dips. This is around the 20,160–20,040 zone. All levels are futures. This can be the earliest area of support and, hence, a stop-loss point for active traders.

If the Nifty is unable to go beyond Friday highs and starts to pull back, then the nearer stop-loss level can be used. But if there is a continuation beyond Friday highs, then we can give the market some more room to breathe and so use the distant stop-loss level.

Since the poll outcome would be known when we start trading on Monday, stocks and other indices will also map out some decisive patterns on the charts. Therefore, we may have to wait for that clarity to take bigger action.

The strong GDP numbers indicate that certain sections are doing very well. Government thrust is propelling PSU counters higher and Chart 3 shows the BSE PSU index with a multi-month breakout.

The stocks have run much in the rise acceleration period from June 2022 and there may be a pullback ahead. But the overall signals are very strong and momentum is intact. So, pullbacks here will create buying opportunities. The news flow will ensure that institutions will continue to remain hungry for the stocks and, hence, there may be limited supplies even at higher levels.

Back in August, I had given a chart of Pharma index and opined bullish on it. A good move has ensued since then. There, too, pullbacks may occur but will continue to present a buying opportunity in individual stocks.

Summing up, trends remain up but noises from election results may be there. So, clarity shall emerge from Monday. No problem in following the trends if it chooses to continue. But if there is a pullback, it will have limited room to the downsides. Pullbacks to support zones defined above can be used to remain buyers in the market.

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.