Nifty This Week In Technical Charts: A Runaway Market!

If the BJP win provided the catalyst for the rise in the earlier week, it was the U.S. Fed that did the trick for the week just ended. The Nifty has already done in the first half of the month what it did in the whole of last month. If you consider that we were all quite impressed with the showing of November, then what does it say about December? Bank Nifty was a laggard for a while but it raced to new all-time highs in the week ended. Curiously though, only two of the big names high news highs along with (SBI and ICICI Bank). The market is rife with expectations of 50,000 on this index. Would that mean that the other heavies on the Bank Nifty (HDFC Bank, Kotak Mahindra Bank etc) will be in action next week? That should certainly be something interesting watch! In chart 1 we see the ratio chart of the Bank Nifty and the Nifty, which I had shown some weeks ago when the Bank Nifty started trading better. We find that the improvement is still in progress. But despite the heroics of the Bank Nifty on Friday, the Nifty still managed to outperform it! Now, for Bank Nifty to continue its move (towards the market expected targets of 50,000) we will have to see the big heavyweights chip in with good advances and for the Nifty to stop performing so strongly!.CHART 1.As far as the Nifty is concerned, it managed to overcome some uncertain moves for about four successive sessions, feinted with a down move indication on Tuesday, only to pull back up from the lower levels. The last two sessions went into complete overdrive with gaps. Now, those gaps will provide the cushion for support on any pullback during the week ahead. See chart 2.The value zone of last week's sup-res level (rectangle) is left far behind by the sheer pace of advance of the week ended. Market also ran away from the trailing Gann trend indicator. So those two, which we can use as a reliable support zone (and hence, a stoploss area) are far away, at 21140-20900 area. Maybe a bit much for a day trader. They may have to look at similar set ups in, say, a 30min chart where these levels would project a stop area around 21,425-21,375. Of course, these levels will move higher as the week ahead unfolds. .CHART 2.There are many who look at the levels of the index and are growing progressively uncomfortable. Some have fear of heights, some are left with bitterness at having missed this rally, some talk about stretched valuations, some others about the dominance of options trading etc. etc. Who is right, no one quite knows. At some point of time, the market will get into a reaction and ALL of the above guys will jump in to say, I told you so! Our job is not to listen to such people (for, even a stuck clock, as they say, is right twice in a day!). We also need to be careful of people who defend the near vertical moves in stocks that don’t have a pedigree or numbers to support their flying prices, nor should we believe people who post things like, ‘ Only 3% of the population invest in the market’ etc. These are also people who will not be found when things go wrong! Our real job is to pay attention to what the market is saying about itself. For, the market has all the news and views tied into it with emotions of people mixed in. This is the heady potion that makes the price of the day. Everyone just plays the game of justifying the current price to what is their held opinion (whether bullish or bearish). Instead, if we set up parameters- simple ones at that- which will tell us the flow of the emotions, we will be better served. For e.g. right now there is some tremendous FOMO (fear of missing out) and that is driving a lot of action. No one, including me, is immune from the impact of FOMO. The commonest saying in the market these days is, "Every stock except the one I hold is moving!" This creates even greater sense of FOMO and pulls even the most reluctant of bulls in. That cycle is building for sure. How will we know that it is ending or about to turn? Well, you can’t know it exactly but associated indications will always be present. For e.g., the current market is rewarding any buy-dip approach. So long as that remains intact, the Fomo factor is still at work and every future dip will get bought into. Eventually, that will halt. We need to watch for that- when the next buy the dip only creates a lower top! We can spot it only when our heads are not in the clouds, filled with the exhilaration of profits that are piling up. .And for sure, the profits are indeed being made. It is another warning signal when money making becomes too easy. As it is now. Eventually, this too will change. That point will dawn on you when you find, one day, that you bought a lot of recent dips or breakouts or rumors or news flows etc. and none of them have delivered. Possibly that moment will be when you seem to be running out of capital, as earlier, you just kept swapping one winner for another new buy. Alongside, you will also find that stocks are no longer responding the same brisk way as they used to.All these will manifest on the charts as basic patterns of disturbed highs and lows, in contrast to the regular higher highs patterns that you used to see. It may be a stock or two creating a pattern of the high rolling over, slowly, breaking a trend or a prior swing low etc. etc. But in the noise of the rising market, that may all go unnoticed. Until the big break suddenly happens. Please understand that I am not advocating that any of these is going to happen. Just describing how reversals creep up on us. It is very rare that there is a big bang end. Remember that at such stages, a small dip in the index (say 5%) will see a 20% drop in a small cap stock. Those then become difficult to come back from. Just preparing readers from getting complacent, a feeling that often accompanies consistent push to new highs. Stoploss levels are provided just for those kind of eventualities. But in markets like these, people tend not to observe stop losses. Markets always come back from dips, don’t they, they ask? In an uptrend, they do. Until they don’t, anymore. Unless you are watching for those, you will miss them. If one has to continue to participate in these markets- and one must, because these phases are crazily dynamic- then the one rule to follow is, Make mistakes in the direction of the trend. Meaning, better to go wrong trading long rather than going short. If the buy dip is working, your trades will still come back into profit. If not, you will have losses on the last set of trades. But you must certainly not make the mistake of going short when the trend is strongly up. I say this because there plenty of folks out there who want to wield the sword right now, because, they “feel” the market is now “too high”. People have been thinking that ever since this rally started about two months or more ago! One other way that you can participate in this market is by using a scaling-in method. If you wish to buy something, then do a smaller size, set up the next resistance and add some more when the next resistance is taken out. Move the stop a bit higher. The general tendency of people is to take an ‘all-in’ position and then hope for the best. At all-time highs of the market that would certainly be a risky strategy. Hence, I am suggesting this variant. Your earnings may be lesser when you win but you will also get hit lesser by increased volatility. Every market needs a changed approach. So we need to be flexible. I just shared some of my experiences here with the readers. Returning to market possibilities, like I stated earlier, this market is still in a rewarding mode. At such times, our mistakes get glossed over and most times, we don’t even realize that we have made mistakes. So long as that remains, all we need to do is be in the market. Participate to the fullest, with trades and investments. Don’t overlook setting stops, however far away those may be. In an earlier letter I had stated that the time window for looking for some changes begins from around Dec 12 and this extends till around Dec 22. I expect the current advance to peak out by the second date. This was mentioned last week as well and I reiterate that. Not to mean that market will drop in a heap from there- but that the strong rise may peter out. Stocks and sectors are moving on a wide front. News flow continues to influence positively. The next round of corporate numbers would now be after Jan 15 or so. Hence some lull may be expected before that. Beginning last week of December, it may be prudent to have nearer stops and begin taking some money off the table. .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.

Nifty This Week In Technical Charts: A Runaway Market!

Beginning last week of December, it may be prudent to have nearer stops and begin taking some money off the table.

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Nifty This Week In Technical Charts: A Runaway Market!

Beginning last week of December, it may be prudent to have nearer stops and begin taking some money off the table.

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