Nifty This Week: Technical Charts And More – Here’s What To Watch Closely Next Week

A very robust advance has been occurring of late and people have been quick to point out that the last 1,000 points gain on the Nifty has been the fastest (some 28 days). That is good news and bad news. It is good because it continues the bullish trends and everyone just loves that. The trend revival also helped the small and midcap indices to turn up after their somnolence for a few weeks. People were just starting to get impatient with their cash portfolio when the about-turn in the market has emerged.

However, it is also bad news because when indices get into overdrive at the top end of the market, it is also a signal from the market that there may be froth building.

Following up on the latter aspect, I did a check on the charts and this is what we find on the charts. To say the very least, it is interesting.

Now, the question is, why single out these two phases? The answer is that during these two phases every weekly candle posted higher highs and higher lows compared to the previous week’s candle. In the earlier run (April-June), the market moved seven weeks for a total gain of 1,720 points while in the current move index has done five weeks and gained 1,837 points. The acceleration is clear. Many times, these become the best phases where money-making is easy.

The next question is, how do we use this? Quite simple really… the pattern has to break. That shall happen only when a previous weekly candle low is broken.

Hence stop-loss can be revised now to this low, at 16,745 for long positions in Nifty futures.

The other point of note is that the week just ended has the longest range since the April 2020 low, at around 590 points. Range extension at the end of a long trend is also an indication of a possible exhaustion. This aspect also can be noted in the chart shown earlier.

Does this have any other significance? In an indirect way, yes. Most people would have enjoyed a more positive run in their trading and investing accounts over the last several weeks. For those less experienced in the market this leads to thinking that one has “got it”, one has managed to crack the code. The magic moving average has been found. The unconventional oscillator period has been deciphered. Or stuff like that. But the real truth is that the market trend was benevolent, nothing more. It would be a grave error to think that one has become a better analyst or trader just because of some recent success. Bull phases tend to induce such feelings.

This would mean, first and foremost, not turning reckless. A string of successful trades does that to you. The second point that has to be noted is that the momentum has not slackened in the higher timeframe charts (day/week) but only in the intraday time frame number. The next chart shows the different time frames with RSI and Ichimoku.

The Ichimoku lines are in the clear for all time frames while RSI is into a divergence in the 60-min. Hence the trend is not going to totally get messed up even if there is any pullback here. Hence there is a need to protect but not abandon your positions and profits.

These days markets have become famous for quick and sharp declines lasting very short durations. This type of movement cannot be ruled out either and there is really no protection against such moves because they occur without much warning. So, unless you are prepared for them, you will not be ready for them. The highlights discussed earlier in this article are for that preparation. It may not become necessary at all, but it is better to be prepared all the same.

One of the reasons for a big thrust higher in the last week is that some index-heavy stocks ran up, such as Reliance, IT majors, even the laggard ITC, HDFC twins, etc. One can look at the moves in these counters to gauge whether Nifty shall continue higher in the coming week. Interestingly, none of these are overstretched in their trends as of now and that is a good positive. So do keep a watch on them.

Market chatter avers that the big selling in Kotak Mahindra Bank may be over, the profit-taking selling in SBI may be over and HDFC Bank looks to be over the hump too.

So there you have it. Nifty is still in fine fettle. I have indicated some levels to protect yourself and also indicated what you need to watch in the coming week to confirm or deny continuation possibilities in the coming week. Not projecting targets because we are all happy to get as much as the market is willing to give us. So why put a lid on it?

CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise, and NeoTrader; and chief investment officer of Plus Delta Portfolios.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.

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