Retail Money Needs To Join In


The roller coaster ride continued this week too, only with a slightly lesser range to the fluctuations. It seemed like the Nifty had clinched it with the upside gap of last Friday and for the first few days of the week, we managed to hang on to that gain, even though we just managed to pip past the prior week high. But the attempt was given up towards the end of the week and prices have traded down into the gap, signalling inability of bulls to hold the higher levels. This can be seen in chart 1, the intra-day chart across the week. 

While the Nifty may have faltered towards the end, the Bank Nifty seems to have fared better and managed to sustain the upward bias till the end of the week. We have been looking at the bank sector to provide a leg-up and it finally seems to have come around, somewhat. Chart 2 shows the same intra-day movement across the week, with a different pattern compared to the Nifty.

It is clear that the banks are up to the challenge so far. In the last week‘s letter, I was looking for the private banks to step up. They did, to some extent. The PSU banks also continued to do well. The other financial stocks also managed to hang on to gains and contributed to an overall better show by the sector. We need to see more of this, going ahead, for the market to persist with the upward motion.

The final thrust still eludes the Nifty. Chart 3 shows how close it is to achieve that distinction. But it is facing hurdles from a pitchfork as well as the 1.272 extension of the last contra move. Both are bunched up around the former highs seen a year ago, slowing matters down, even as the Bank Nifty vaulted over its former highs.

It is difficult to fathom what is holding the market back from achieving the new high? Buyer fatigue, perhaps? But FIIs have been on the buying side, mostly. So, who is supplying to them? DII, apparently. The retail ‘Wall of Money’ is not moving much perhaps, but for engaging in some trading activity. Maybe that is the missing link?

It then raises the question as to what is holding the retail back? Well, we don’t have to go too far to get an answer to that, perhaps. Chart 4 shows the situation with the retail indices.

The charts shown are MidSmall 400, Midcap 150 and Smallcap 250 as a relative plot. It can be noted that all the three indices are down and nowhere near the highs, like the other indices are. Sentiment of retail traders is always stuck in their cash portfolio, which is largely made up of small and midcap stocks. As long as this area of the market doesn’t improve, they won’t really be takers of the moves in large caps. One can see the stark outperformance of the large cap vs the mid-small caps in chart 5. It can be noted that this outperformance of the large caps accelerated in the last one month. There is always a recency bias to sentiment and hence it is not surprising to see the lack of enthusiasm among the retail lot.

Chart 5

It is, therefore, obvious that retail money needs to come back big time for the markets to get into a bullish stride once again. Right now, they seem to be content not to participate in declines. So, the FII buying keeps sending the market higher but the lack of follow thru buying pulls the market back a bit once again. Some fundamental trigger has to come in to break this imbroglio.

Until then, we may see this choppy movement persist. It is possible that the Nifty may pop into a new high too but it seems doubtful that there would be much of a follow through action even then. In a way, this is convenient. We should simply keep buying the end of small corrective pullbacks. Technically, one has to define some supports where buying can be attempted. There is no fear of big dips, except in the minds of people. If we overcome that fear, then dealing with the market would not really be difficult.

In the last week, the prices did not trouble the lower support levels mentioned at all. The supports work up a bit for the week ahead to 41,850/ 18,100. Upside targets don’t really matter except for day traders. The market is clearly headed higher, so why put a ceiling to it with levels? But since there isn’t any sector index (barring banks) that is standing up and saying ‘Look at me’, we have to presume that it will be yet another stock-specific week and, therefore, all the more reasons to wait for good buying opportunities to emerge in order to participate. Active traders could attempt a stray short here and there but avoid any big bearish positions.

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 BQ Prime or its editorial team.


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