Technical Charts And Extra – Lots Of Information From Three Days


A very short week of trading gives us very little data variance with which to analyze. The first comment on the shortened week was that the three days cleared pretty well, with two of them posting profits and one inside day providing an opportunity to buy within a week.

Right now we think that not much has happened so far, but if we look back on this week, let’s say six months from now, no one will remember that it was a three day week. So we need to look at the weekly charts from such an angle, just like any other data point or representation on the chart, and not as a three-day slip. In that light, the end of the week gives us some interesting data.

First, all industry indices and major indices were positive for the week. This is not an easy task considering that they were consistently smashed well and neatly across the board, not just for the previous week, but for a couple of weeks in some cases. For a study, let’s look at some industry indices to understand where the market is currently looking.

The three top charts (Private Bank, PSU Bank, Pharma) are clearly recovering from a correction lasting several weeks. The bottom three (IT, Metals, FMCG) are much better placed, with Metals being the best move among them all. FMCG isn’t bad either when it’s about to break out.

Now I’ve picked these six because they pretty much represent where most of the trading takes place on a daily basis. Everyone loves the metal stocks, but IT and FMCG are more backed by bigger players than retailers. So if those two are showing some upward movement, then one can possibly conclude that bigger players may also be at work. In contrast, look at the more anemic movement in the private banking index. This is one of the heavily traded bags, and the conviction there seems to be quite a lack of it! PSU banks actually seem to have done better, with more determined pricing actions. Interesting layout in the Pharma Index, showing an upward movement and a top close after a decline of around 10 weeks (probably one of the biggest response times).

This is how I would look at these charts: The more time it takes to respond, the longer it takes for people to make a purchase decision.

Metals all had unsafe candles with lower shadows and very limited price damage, indicating the greatest propensity to buy for dips within a week. Look back at the diagrams from this perspective.

Now it would be easy to understand how to interpret these sectoral movements over the coming week. Of course, we have to keep our eyes on the metal names. “Oh they went up too much” you say? Look again at the table and look at the sequence of four Doji candles, all with lower shadows! Even for an inexperienced card reader, that’s a sitting duck!

Now, with a four week upside resolution of uncertainty, there should be more gains. Does that mean we won’t see a decline? Of course not! However, this means dips must be purchased within a week. Following this simple rule would be enough to try to get some of the expected advances in metal stocks over the coming week. Perhaps a similar fate awaits the FMCG lot. The outbreak is imminent, but it is better to wait for the actual event to occur. Maybe it happens early or late in the week, we don’t know. But once it manifests itself, don’t hang around and say, “If only I had bought it sooner”. The market is all about the now. Once an event has passed you by, it’s over forever. The analysis is done so that we are ready for the “now” moment as soon as it arrives!

Oh, with all that focus on sector indices, did we forget to talk about the Nifty and Bank Nifty? Let’s get back to our index six pack!

Well, it’s evident that the Bank Nifty and Financial Services indices have been under constant pressure that the Nifty seems to have escaped. But look at the group in the bottom row, the Small, Mid and NSE 500. Despite a terrible month in February, we can see that they are certainly no worse for the grievances taken by the dealers!

What can that mean do you think? I assume that private investors (who are based in the small / midcap sector) are not as badly affected as traders of futures (large caps) were last month. Hence, they should be much more active in the market than the large-cap traders in the coming week (read FnO). Perhaps this is the area (i.e. momentum investing) that could bring in the Moolah in the next week?

Fourth quarter results were announced for various names. Certainly another week or so. But rumor chambers get active around this time, right? So if you know something, you may already be active. Keep the clock.

The Nifty can only get going again after crossing 15,000 to 15,100 levels. As of this writing, the SGX Nifty is already flirting with 15k levels. I have no idea whether this feat will continue until we reopen on Monday. But this is exactly what we should pay attention to in order to read the signs here. Bank Nifty may get in the way as the indices are not yet overly optimistic for banks.

Sometimes you think that you may not get a lot of data from a three day shortened week. But I think we found enough data to plan our week in advance. Now sit back and watch if it flows to plan and do business accordingly!

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 reflect the views of BloombergQuint or its editors.