Nifty In Technical Charts: Price And Time Confluence Ahead!

But for a change this time, some new evidence is leading to a different song this week. But before that, a hark into the past to see where we have reached from where we were a few months ago. 

I thought I would take a look at what I had written way back in May—before the election outcome. Here is an extract of that letter and I have added some afterthoughts on those points. Underlined text is the accent I want to place on important aspects of that article.

I wrote,” ….would call for a surprise outcome to the poll (something I argued for in the last week letter) and if this happens, we can see a sharp rise occur from June itself and that may last into the end of the year. In any case, the projection shows a possible sharp rise from July that stretches to the end of the year. So, as can be seen, the poll results have already been factored into the projection! Far ahead of the actual event!

So, the forecast for a sharp dip and an equally sharp rise post-poll was already built into the picture! All readers were forewarned of those events well in advance. 

Continuing with the quote, I wrote further, ”This dictates our trading and investing strategy to continue to be the same as earlier—i.e., be buyers at lower levels. You have to remember that a ranging action would see a few drops to the lower end of the range that should get set up. Chances are that June shall continue to exhibit volatility, while July may show a better inclination to remain upwardly biased. Hence some caution is called for in trading June. But it is noted that the second half of the year shows a strong inclination to be upwardly bound. So, this would mean that we should hold our nerve if there are any sharp declines owing to localised causes.

Two important points were made here. First, be buyers at lower levels. Second, was to hold your nerve. The localised cause was the election results. June was the last big opportunity to buy. After that, the Nifty has risen 5000 points into the current levels! 

Continuing further, I wrote, “But let’s set up some levels to watch ahead in June. Let’s protect our existing longs first. The last swing low sets are around 21800-900 zone and this can be the stop to nurse for active traders. If this breaks, then the supports near 21100-200 will come in for a retest. If the prices cannot break these levels within June itself, then chances are that this level will not break.” 

The unexpectedly sharp fall on June 4 brought the Nifty down exactly into the support zone and if one had kept the faith in the forecast, the statement that the low of June will not break would have proved handsomely profitable! 

So, let’s return to the present and check the status. As ever, chart 1 shows the intraweek movement of the Nifty Future. 

Those that are fond of channels may draw something like this and develop cold feet towards the markets. See chart 2.

This is modified pitchfork (the Schiff channel) but other methods of channelling will also produce results similar to this. The prices are clearly headed towards a resistance zone as we head into the next week. Due note must be taken of that. 

One of the clichés of analysis is to always favour the ongoing trend. Now, the overall trend is resolutely bullish. While this chart does call for a high coming up, one should think of that as an ongoing high in a trend and continue to look to buy dips back into the median line or the lower channel line. The bottom panel of the chart, hosting the RSI, still shows no signs of weakness or formation of divergences, etc. So long as momentum is in sync with prices, it is more than likely that price moves shall continue after a pullback. Overbought status produces a pullback but not a reversal. 

One complaint that everyone, however, has about this market is that while the index may be up, the value of the portfolio they are holding is either not moving higher and in some cases, moving in the opposite direction. This is frustrating many an active investor. Well, the reason is not difficult to see. Chart 3 shows the correlation between the Nifty and Small Cap index. In earlier months, the small caps were clearly doing well. Over the past month or more, there is a marked underperformance of the small-cap stocks. This hurts. But the market is moving up and that ought to restore confidence soon.

Writing in end July (Nifty levels of 24200), I mentioned targets as follows: “One way is to do an AB=CD measure. We add 11200 points from the bottom of the correction in June 2022 and we get a target of around 26350-400. That is a possible target in the Nifty future. The other one is to apply the Fib ratio for the count. A 0.618 external projection puts the target at 25200 and we are nearing that now. It gets a little more interesting when we go to the next projections. We get a confluence around 29150-350 area next using 1.272 (standard projection) and 1.00X for an external projection.”

Interesting to note that the projected target has now been reached! Just pause to think about it. I have quoted from letters from May (even though was bullish much, much before that as well) where we had hit down to 21200 levels on Nifty and then gave a target that was consistently higher with each month. And now we are about 5000 points higher from when the May projections were made! Again, keeping faith in analysis about what the market was saying was the only requirement. If we get swayed by all the noise, then it will ever keep us from doing the right things. An interesting side note here is that even higher projections for targets have been given, which may be noted. 

Time projections have always been a part of my forecasts and the last one was made for Aug. 5 and I had discussed in the first letter for that month that price action from the low of that date suggested continuation higher. As can be seen in chart 4, the move has panned out nicely since. As can be seen from the chart, the next time goal date is projected around Oct. 3.

Now what is significant about this projection? Go back to chart 2, where I have shown a price projection using the pitchfork and read the associated commentary for that chart again. When price and time are coinciding, we should be paying more attention. The charts are now suggesting that there could be a short-term high that is about to form next week. Beware of that. 

Now, some decisions are to be made. For those following the very short-term trend may need to consider taking some profits in light of the upcoming price and time match. Ideal is to wait for the event and then check whether the low of the turn date is broken. Up to the 4^th is also fine. If it breaks, then profit-taking should be done. In case the market decides not to do that, then it is business as usual! For those that are following a longer sequence of swing trades, they are better off treating the event as a prospective pullback towards lower support, which is at 25900 and fresh buying can be attempted there with a nearby stop. For even longer duration players, the trailing stop on trading or short-term investment longs has risen now to 25200-300 area. Finally, for long-term investors, such dips will provide fresh buying entry points as and when the next buy signal emerges. 

We shall leave it at that for this letter. The main event is to watch for the P(rice)-T(ime) confluence in the week ahead.