Market Chronicles for the week ended 11th September, 2020.
If you’re new to technical analysis and would like to know how to read the charts below, here’s a quick guide! https://www.investopedia.com/trading/candlestick-charting-what-is-it/
Nifty ended the week a worrisome 1.15% in the green. The much dreaded follow-up to last week’s bearish engulfing candle did not form, which provides some comfort.
Our outlook is CAUTIOUSLY OPTIMISTIC, as the immediate support range of 11180-300, held the index.
Please read on to understand our rationale. This article contains an analysis of technical parameters as well as open interest and derivatives data. All the information below has hints for what levels to watch out for in weekly trade. Replicating these on your charting software and keeping an eye on them can help minimize unpleasant shocks in your trading.
Trend
While the uptrend is still not fully repaired, we see a hidden bullish RSI divergence on the index.
Moving Averages
A quick snapshot of how the major Moving Averages are placed on the daily chart. Nifty briefly ventured below 20 DMA but ended the week above it after finding support near 50 DMA.
Ichimoku (D)
Ichimoku (W)
Nifty intraday
11430-11450 is a good intraday support region.
Bank Nifty
Bank Nifty found support at 50 DMA and the 38.2% fib level. It has now formed a hidden bullish RSI divergence. Can see a good bounce if this plays out.
Bank Nifty / Nifty – Relative Chart
As suggested last week, Bank Nifty underperformed Nifty and the pair is now back in its support zone.
Witnessing a bounce is likely if this zone is held.
There are 2 new buzzwords in town this weekend among stock market enthusiasts, after SEBI’s latest notice mandating Multi-cap funds to invest a minimum of 25% each in SMALLCAP and MIDCAP stocks! Let’s see what the charts have to say.
Nifty SmallCap 100
The index retested its breakout from a long term downward trendline, and is placed right below the major resistance belt of 5900-6000. A push above that can bring some good upside for smallcaps.
Nifty Midcap 100
What seemed to be a rejection from a resistance level might just lead to a fresh breakout here.
Currency
DXY trying to break out of the trendline is a worrisome development for Indian markets.
The index can find strength above 93.9.
USDINR
We witnessed a retest of the breakdown. The pair is now stuck in limbo, trying to figure out what direction to resolve in.
OI Analysis:
Open interest or OI is the total number of open positions in the market. A high OI indicates that there is a lot of activity in that instrument. It does not indicate buyers and sellers individually but is instead a more holistic measure, i.e. it is the number of contracts between the buyers and sellers, not the buyers and sellers on their own. One of the ways OI analysis works is that high-volume market participants would have sold strangles at strikes which leads to higher OI. This type of reading does not typically account for other types of spreads that one may trade, but the data for it is available.
Nifty
Nifty OI figures paint an interesting picture. We generally see the higher OI strikes being slightly farther away from the CMP, but that isn’t the case this past week. The highest OI strike is barely 36 points away from Friday’s Nifty close. This isn’t good as it shows how fiercely call writers will defend the 11500 level.
The range is much tighter on the downside as well. This implies that we may perhaps see some swift movements within this range before a larger move on either side, depending on the power of bulls & bears.
Bank Nifty
We have something very similar to Nifty’s OI on Banknifty, too. This is especially interesting as Banknifty has typically followed a completely different OI structure to Nifty’s. While high OI still exists at every 500pts, bulk of the interest lies around CMP.
Heavyweights in the Nifty 50:
Let’s look at some important stocks in Nifty50 that collectively make up around 42.82% of NSE’s flagship broad market index. The analysis is done on both, Daily and Weekly timeframes. Charts displayed are either Daily or Weekly depending on which provides a clearer picture.
The weights used as per the most recent NSE press release available, dated August 31st 2020. New weightages should be with us next week onwards. Compared to the previous period’s, this month has seen some major changes including RIL’s weightage going down, HDFC Bank being almost at double digits, and ICICI Bank inching above TCS to reclaim its spot in the top five.
On the chart front, we’ve switched things up by using an EMA as it gives us a better idea of the trend. We’ve also used PSAR (Parabolic Stop and Reverse) which is another measure of trend; the black dot below price indicates uptrend, and a dot above indicates a downtrend. This has been done to better understand where the market is placed after a choppy past week. RSI has been used to understand momentum.
1. Reliance (13.63% weight): Instead of a trendline, we used a 20EMA as this shows us a better idea of the shorter term trend. The past week was very important for RIL as it managed to break out of the consolidation/sideways movement and break not one but two important psychological resistances. This ‘rally’ was largely driven by strong accumulation as we discussed last week. Additionally, there were some news based moves as well, with the Amazon deal being rumoured. What’s slightly worrying is that Friday closed on a spinning top with high volumes, not an ideal long setup. So while it managed to hold 2300 levels intraday, whether it’s able to justify higher levels in the coming weeks is the real question. Especially because several investors have second thoughts about current valuations ($200bn+). (Read the Basics of Dow Theory and trend by clicking here).
2. HDFCBANK (9.99% weight): HDFC Bank took resistance from the area we highlighted last week and it has in fact breached important supports including the trendline. Granted this trendline is a steeper one and a flatter one is possible, but this was the first support zone. The stock hasn’t managed to perform consistently since quite some time which isn’t so good, but based on the chart, we may be heading into a breakout or break down soon.
3. Infosys (7.03% weight): Last week, we spoke about how Infosys may be alright as long as 900 levels are held. The week’s low was ~910, after which we saw a swift bounce up to 945 where it rests on Friday. All isn’t good though, as the stock continues to face some hesitation at higher levels.
4. HDFC (6.55% weight): HDFC consolidated around the demand zone highlighted last week. The daily candles indicate a very volatile price action for the stock this past week, certainly far more than HDFC Bank and any of the other top Nifty stocks.
5. ICICI Bank (5.62%): Last we discussed the possibility of ICICI Bank underperforming. The past week’s moves were in line with that possibility. However, the most recent three candles indicate strong buying at lower levels. This is quite reassuring and may show some accumulation and rejection of lower levels. As long as the lows of those candles are held and the 20EMA breached, we may see ICICI Bank showing us some decent moves.
Heavyweights in Banknifty:
Since we have started analysing Banknifty in Market Chronicles, we decided to include some top movers of Banknifty. The number one mover is HDFC Bank, which has already been spoken about in the previous section, so we will discuss two other important stocks here, namely Kotak Bank and SBI. Other banks have an impact on the index, but these along with ICICI Bank are typically the movers.
1. Kotak Bank: We discussed rejection of 200EMA support last week, and this week we saw very bearish moves by Kotak Bank. In fact, there were days where the stock dragged Banknifty down single handedly. Friday’s candle close is almost a bullish engulfing at an important support zone which may mean reasonable performance by the stock soon.
2. SBIN: The stock shows interesting price action. Last week we discussed 200EMA resistance along with channel break. This week, SBIN managed to climb up sharply and has managed to just barely enter the lower line of the channel. This is a very strong sign, and in fact SBIN was one of the key drivers for Banknifty on Friday.
Volatility:
VIX continues to fall, but based on intraday price movements and overall sentiments, we believe that the actual price movements are not very well described by INDIA VIX this time around. If the markets continue climbing a wall of worry, we may continue seeing lower VIX levels, until it doesn’t. When VIX may just spike.
VIX dipped quite sharply this week, largely because of the strong recovery sentiment that flooded the markets, albeit a bit late. It still rests above 20 which isn’t ideal, but we may see some reduction in VIX further.
The problem is that these days VIX is not an accurate measure of volatility, especially intraday volatility. So a lower VIX this time has not meant, at all, a more trending/stable market.
For your reference, a lower VIX (or lower volatility) is generally associated with price moves that are less choppier and more trending. It also results in lower option prices (due to a lower IV). But at the same time, the ATR (Average True Range) of the stock would be narrower.
Disclaimer:
We, Anosh Mody & Krunal Rindani shall take no responsibility for any losses occurring out of investment/trading decisions you make based on the contents of this article.
We are not SEBI registered investment advisors. This article is meant for educational purposes only, please consult your investment advisor before acting upon any information you see here.
We may or may not have open positions, kindly assume that we are biased.
Anosh Mody is an MBA student from SBM, NMIMS Mumbai. However, the views reflected in this article are strictly his own, and in no way reflect upon the B-School in any manner.
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