Just as it seemed like the first of the turn date of the month would work in sending the indices into a reaction mode, the sentiment rallied and sent the prices right back up higher by the end of the week.
In a sense, the trading pattern of the week revealed a strong unwillingness to go lower. Barring last Monday, when the prices hit down, the next three sessions saw sharp and very good recoveries from the lower levels on each day.
The Bank Nifty chart illustrates this feature better and the same is shown on chart 1. With all the hectic swings, it was no surprise to see Friday turn into a quiet day.
While we can all feel happy on the fact that the market trends are still resilient, a look at the daily chart of Nifty does not really create too much confidence. Chart 2 shows the extent of oscillations that we have all been subject to since the start of this year. For the record, we have made an all-time high, but the ride has certainly not been a smooth one.
Be that as it may, the Nifty managed to brush away what could have been an opportunity for the bears, when the turn date of Feb. 9 could not produce a push lower. Time windows are usually to be treated as a chance for the other team to get in their bit of play. If they don’t, then the current team with the ball (in this case, the bulls) will continue to move ahead with it. And so it seems to be happening.
As mentioned in the forecast chart for February that I had given two weeks ago, there was a possibility for the uptrend to continue till around the 24th or so. That now seems to be happening. In that letter, I had indicated that we may see a move toward 22,200–22,450 range for the Nifty it if succeeds in pushing up. Now, that needs to be awaited. For reference, people may check the letter of last week, too, where that chart was repeated.
The pathway marked out in chart 2 also highlights the most recent swing highs and lows. Going by the usual practice of marking the swing lows as potential stoploss points, we should now revise our stops to below 21,600 (for active traders) and to under 21,100 (for swing traders). These are marked as SL1 and 2 on the chart.
Now, as happens often, the question is always as to what will lead the rally? See, it is not that great a rally in time, although it is expected to push prices to all-time new highs. And, even though the market high was made over a month ago, the prices have remained in a range and sector rotation has been in progress, as a result of which most major sectors have continued to remain in play. It is only of late that some PSU and defence counters have taken a hit. But none of these moves have really shaken the confidence of the people.
Therefore, I feel that the same set of stocks may well continue to be in action and no new set may emerge. The PSU Bank continues to be in a good run. If readers recall, I had flagged off the rally in this sector over three weeks ago. SBI has got into an overdrive and that is continuing to influence the other PSU Bank names positively. Best to use SBI as a proxy to check out if and when to take profits.
The other sector that I have been bullish about since quite a while is pharma. I had called for a big rise to occur in the pharma sector in the letter of Aug. 13, stating that it would be one of the leader sectors of the next bull market. Chart 3 shows the movement in the pharma sector since then.
At the current levels, the pharma index has reached the first of the projected target zones and hence, there could be some consolidations and mild reactions ahead. Almost all the leader stocks have come out with very good results and the market has been quite happy with the numbers, helping to push the prices of stocks to much higher levels.
Now that news triggers may be drying up for a month or two, it is possible that we could see some halt or profit-taking in some of the names. This will be on a case-by-case basis. Hence, it is suggested that readers can consider some profit-booking in some of the names for now and push back new buys to later. I still feel very bullish on the sector and believe that all pullbacks in the leading stocks will be another buying opportunity in them.
Getting into overdrive last week was the auto sector. With major stocks pushing to new highs, the index was buoyed up and looks set to continue. Chart 4 shows the super trends being currently essayed by the auto index. There is more room to advance here and hence, top names remain buys during any intraweek dips ahead.
One of the notable features of the market from the week ahead is that the triggers from quarterly numbers are more or less over. It has been a pretty decent fare so far with more hits than misses. And the trend has been superb over the last couple of months.
It is now time, therefore, to expect slower markets. This would mean a market that may get choppy. We have already had a taste of that since the start of the year, but the swings have been large, and index has tapped above to new highs and that always keeps the sentiments chugging.
However, if the market slows and doesn't post new highs any more for a while, then chances are that we shall become subject to news flow that emerges from overseas.
Now, the main centre is the U.S. and there the focus appears to be rate cut possibilities. And that talk keeps vacillating. The trends in the U.S. are being held aloft by the top seven stocks and that is also a tricky element.
Crude oil, 10-year yield, dollar index are also largely emanating from there. This can make for some opening gaps if unexpected moves occur. So, these are things to be watching for ahead, more so than what we were doing for the past couple of months.
Nasdaq has been trading well for the past several months and has neared the all-time highs. With the Dow and S&P already at new highs, it should be a matter of time before this one too follows suit. It has implications for our IT stocks as traders take clues from the Nasdaq moves. And with the top seven in great form, focus may also be on the IT stocks here. Chart 5 shows the Nasdaq Composite.
Among the IT majors here, Tata Consultancy Services Ltd., Persistent Systems Ltd., Coforge Ltd., and HCL Technologies Ltd. are stocks that have moved to all-time high. We may see some continued action there as well if the Nasdaq keeps up.
Summing up, the market doesn't seem to be in any mood to decline. Turn dates, as stated, offer a chance for markets to halt the ongoing process and try something different. However, market rebuffed the earlier week turn and we now have to watch for what it does at the next one (Feb. 23–26).
Levels of note have been mapped out at the start of the letter and those may be kept track of. The trends may continue to be driven by the same set of stocks but market may turn a lot more stock-specific and news flow may have to be sought out for triggers.
Also, chance of volatility continues because local news flow will now dry up so focus may turn to the overseas flows and there, we may be faced with some opening gap problems. The easy-money days appear to be ending. Tread with some additional care for the coming couple of months. If the market hits projected highs around the next turn date, consider taking profits on pending longs.
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 NDTV Profit or its editorial team.
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