Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : Nifty moved in just 180 points range in the last four trading sessions and lost only 4 points from the last Thursday to this Thursday. After reaching to its prior swing high around 11,700 levels, the benchmark index faced stiff resistance in the last three days around these levels. In the last four trading session, Nifty added two distribution days on Tuesday and Thursday. It has also formed a bearish engulfing like pattern and took support at 8-EMA on Thursday. The market breadth deteriorated after many days, and most of the sectoral indices closed with losses. The PSU banks were the worst hit. The weekly expiry caused a highly volatile day.

 The Nifty is forming a bearish bar on the weekly chart, which is a result of two big distributions on Tuesday and Thursday. The RSI is showing a negative divergence on a daily chart and the Stochastic Oscillator already turned down from an extremely high point. The %K is below the %D, which is indicating further weakness. Interestingly, Nifty formed a third lower low bar and registered the week’s lowest close. The current structure suggests that Nifty may further correct upto 11,480. A close below this level will lead a fall down towards 11,400 and 11,320. Overall, we expect Nifty to consolidate between 11,320-11,720 in the near term. As the results season is on, the stock-specific activity will increase. 

NIFTY DERIVATIVES: 

Nifty Bank, the major sectoral index, is trading at 8.4 per cent away from its lifetime highs. Recently, the volatility increased in this sector as some of the leading banks in the index were facing several governance issues. With the recent corporate tax cut announcement, the index rose by 15 per cent in just two trading sessions. Later, it was corrected by 3,233 points or 10.5 per cent of the 4,158 points rise in 14 trading sessions. Unlike Nifty, the benchmark index, Nifty Bank is unable to retrace the 100 of this fall. It is facing stiff resistance at 61.8 per cent retracement level of 29,566-590 levels and forming indecisive patterns, such as Doji, on the daily time scale. 

If we look at the broader picture, Nifty Bank is clearly in an uptrend, as it formed a significantly lower low on longer time-frame charts. It is trading above the short term and long term moving averages and meeting all rules of Daryl Guppy’s GAMMA setup, a combination of 12 different moving averages. The long term 40-week average is trending up. The index is currently trading just above the resistance of a 30-week average. The short term 10-week average turned up. The immediate resistance is at a sloping trend line in the 30,300 area. RSI, the leading indicator, is in the squeeze area now and any move above the 56.50 zones will give a confirmed bullish signal. The 56.50 area acted as support and resistance several times, historically. In any case, if the RSI reaches above the 60 levels, it will break the downward channel, which will be the long-term bull signal. The MACD has just given a buy signal by moving above the signal line, near to the zero lines. The stochastic oscillator’s %K moved above the prior swing high and above the %D. As we discussed above, Nifty Bank can move to 31,215, if it can clear the 30,300 area with these technical parameters. If the recent swing low is protected, Nifty Bank will move towards 34,100 levels within the next one year. 

Interestingly, only 50 per cent of the stocks or large cap banks are leading the index and the remaining still trading at year lows. Most of them are facing corporate governance or earnings issues. Some large cap banks turned to a mid and small cap with a huge fall in the stocks. Overall, interesting times begin for the Bankex for Samvat 2076. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Bajaj Finance at Rs. 4,095 in issue no. 52 (dated October 21, 2019). Post our recommendation, the stock moved higher, in line with our expectation, and went on to touch the level of around Rs. 4,219.85. We had given a ‘Book Profit’ message at the level of Rs. 4,216.65 through our SMS service on October 22, 2019. Thus, investors, who had taken positions according to this strategy, would have made a decent profit.