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Tuesday, October 4, 2022

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Nifty This Week In Technical Charts — Market Narratives Are Shifting


You will have to look at the chart a bit carefully. The candles in black and white is the S&P500 index while the green-red candle is the Nifty. Over the last two years, there has been a pretty strong correlation between the two indices. Even right into the June 2022 low. But looking at the post June-end low, Nifty has started strongly outperforming the S&P500. Two resistance trendlines are drawn and one can note that the line of the Nifty is a lot flatter compared to the one on S&P500. It is, therefore, evident that the Nifty is now tending to peel away from the U.S. markets and that can take us into a totally different realm. Very interesting situation and we need to see if this variance persists because it could point to something significant for the future.

Why all this time spent on relative analysis, one may be wondering? Why not just look at levels for the Nifty or Bank Nifty and go bang-bang? Well, there are times to do that and there are times to study the narratives. Right now, the market is in a state of flux. Valuations, trends, speed of moves, lack of corrections (or limited-ness of it), FII flows, quarterly results, fear of missing out, fear of heights, etc. are all mixed into the gravy right now. That cannot make for too much of clarity. People are looking at all kinds of relationships and the problem too is that those very relationships themselves are in the process of changing. Hence, one has to pay very close attention to what narrative the market whispering right now. My effort every week is to understand the market’s narrative and try to match it to the narratives that everyone else (TV, print, WA, Telegram, websites, etc.) are putting out. When the two match, some trended moves shall occur. When they don’t, some seemingly random moves will occur. But there is seldom anything random about the way the market moves—there is always a pattern. How quickly we are able to spot it is really the name of the game.

So, right now, I feel that the market is shifting gears. I have already spoken about the likely action that the domestic funds may take. I have used the observations on the sector indices to build a narrative of my own, which I hope shall resemble the eventual narrative of the market. In line with this, I remain a buyer on dips for both investing and trading. In trading, I remain active but confine my focus to very trended stocks (largely up-trended), while in investing I am looking at where Q1 has thrown up some nice winners. I am also looking at stocks that have done very well during the bullish phase of 2020-21 and where the price damage has been quite limited. I reckon if people who bought into such names are so reluctant to give up on those, those stocks may continue to do well when market pushes higher. So, it is a mixed approach and driven by the market’s narrative rather than any specific fundamental or technical views.

In August, option writers were badly squeezed and this kind of action may probably increase in occurrence in the near future. In a trend devoid of too much clarity, squeezing retail short sellers of options is one of the low hanging fruits. So, those engaging in shorting options as a means of a livelihood in the market—particularly those with very low capital—are warned to find a different vocation.

For the numbers, 16,800-17,000 continues to be a strong support zone that may be tough to break. Similar support in the Bank Nifty may be around 35,500. These trailing stop levels for positional traders.





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