Nifty This Week In Technical Charts: Dips Still Remain Buys

There was cheer all around as the main indices—Nifty, Sensex, Bank Nifty—hit all-time new highs. Did we hear people rejoice? No. Surprising, right? Such an event should ideally have investors popping the cork on the bubbly but there certainly was no celebration in the market.

The main reason for this is the state of portfolios of individuals. Most common folk hold small-cap stocks in their portfolios and the one-year return there has been a negative of about 10% in contrast to the Nifty where the one-year return has been around 7.4%.

These are basis the small-cap index but most people hold stocks that don’t make it to the index and hence, those returns may be even worse than these numbers. 

All the same, one can still be a bit happy about the proceedings because it is seen that after the main indices reach new highs, there is always some positive fallout on the mid and small-cap stocks and hence, if the market remains steady, the chances of a rally in the small and mid-cap space may soon emerge.

Signs of that were already starting to manifest towards the end of the week. A bout of good news ought to help matters along, especially, since the Nifty seems to have hit some resistance levels. Hence, the pace of advance here may slow down. But there is nothing negative in the environment to create any declines and hence, the main indices could remain steady. 

There are enough positives around. Dollar index has pulled back and hence, weakening rupee scenario may recede. Oil prices have also dropped, providing some positives. GST collections have continued to remain high. Petrol sales have moved higher by 25%, that too in November, when the festive season is pretty much done. This clearly indicates that the economy is on a good footing. PMI numbers came out good. The U.S. Fed is making amenable noises of tempering the rate hikes and the expectations for the upcoming RBI meet are also tempered. The FPIs continue to be on the buying side, having bought a decent lot in November, etc.

Given these factors, the markets are refusing to decline. Large-cap stocks are moving higher slowly and selectively, but their collective action on the indices has been quite positive. So, that is at the larger perspective, which anyway, I have been averring is quite intact, making all dips as fresh buying opportunities.

But that is so much easier to say than do! For, who is not nervous about the high levels reached? Every third person you meet or speak to is asking the same question—when is this market going to correct/decline/crash? The severity of the expectation is only determined by the size of the portfolio!

The simple rule of analysis has always been that so long as people expect a strong reaction, it never shows up. It kind of sneaks up on you when you are not really looking for it or have turned confident that it will not do so.

So, let’s check out the shorter time frame to see what we should be doing with trading positions. As ever, we start with the movement over the week as seen through the intraday charts. See chart 1. This time, the chart is Bank Nifty, which actually had a more torrid time compared to a reasonably linear time for the Nifty.