Market Chronicles for the week ended 18th 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 flat, just 0.35% up over last week, after testing the 78.6% fib level of 11377, which served as resistance for a long time during July and August. Our outlook remains OPTIMISTIC, till the 11180-300 range is protected to the downside.
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 that started in March is currently under scrutiny, and while a major price correction does not seem imminent, a long-drawn time correction cannot be ruled out.
The latest major swing high is 11795 and the latest major swing low is 11185. A decisive move outside this range will dictate the movement in the index further on.
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)
Index seems to have found support on the flat kijun-sen for now.
Ichimoku (W)
Nifty intraday
Critical levels marked on the chart.
Bank Nifty
Bank Nifty seems to be moving downward after being unable to hold the support level.
Bank Nifty / Nifty – Relative Chart
The pair is bang in a support zone, and we can now safely call this a make or break level. Sustaining here for a few sessions, maybe even weeks can set the stage for a bounce, if one does not come immediately.
When we zoom out further, we see another major change in polarity level for the pair at 1.88, below which things can get really disastrous for Bank Nifty.
Nifty SmallCap 100
The index is right at the confluence of major horizontal and diagonal trendline resistance. A breakout above this level will set the stage for the next leg up
(Monthly candle not yet complete)
Nifty Midcap 100
The index is at a major downward trendline resistance.
Currency
DXY
The dollar currency index’s trendline breakout fizzled out, and now seems to be making a base. Fresh breakout above 93.9.
USDINR
Refusing to move lower after the breakdown retest. Will be interesting to see how this plays out.
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 are quite interesting. Last week, the highest Call OI was at 11500 which showed resistance at that level. This time, it’s the Put that has the highest OI at 11500 which means it’s an important support level. This is one of the reasons why we are optimistic.
The number of contracts open are quite high, significantly higher than what we typically see, which shows a high degree of speculation. It also shows some uncertainty as there are several high-OI strikes.
Bank Nifty
Banknifty seems to have very little Put writing. The high Call writing at higher levels shows some amount of resistance. This might be because banks in general aren’t well placed.
The broad-market index Nifty is better positioned than Banknifty by the looks of OI.
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): Reliance has held on to 2300+ levels very well. But on the other side, we have seen clear rejection of higher levels with terrible intraday price action in the stock. These aren’t reassuring signs, but after two rather sharp spikes recently, it may indicate hesitation & profit booking which is completely natural. At this stage, sentiments will possibly rule Reliance, and hence, the broad-market. So if buyers feel higher valuations are justified (with the waiting list of investors), we may see a strong move. With every uptick, it becomes harder to justify RIL as a strong positive contender as it’s practically hanging in the air. Except for some visionary ideas, financially speaking it possibly does not warrant these levels. This makes it very important to be cautious with Reliance, especially with such a large downside. (Read the Basics of Dow Theory and trend by clicking here).
2. HDFCBANK (9.99% weight): After breaching the trendline last week, HDFCBANK attempted re-entry into the uptrend this week but failed to do so. It has now walked right into a good zone where we may potentially see a nice bounce. The problem, however, is that over the weekend another firm has initiated a lawsuit against the bank which does not help with sentiments. With HDFC Bank being a leader in Nifty & Banknifty, unless it’s able to pick up pace, we may see a fair bit of hesitation from the indices as well.
3. Infosys (7.03% weight): Quite a strong performance by Infosys this past week. In the last edition, we discussed how the stock is fairly bullish as it held 900 levels. Turns out, the stock was very bullish as it managed to breach even the 1000 mark with ease. Friday’s closing shows some profit booking. So while a correction may be likely, it does not necessarily make Infosys bearish.
4. HDFC (6.55% weight): After yet another disappointing week, HDFC has approached its last line of defence. If the green highlighted zone is breached and gap filled, we may see the stock coming to levels we saw during the COVID selloff. All HDFC brand companies seem to be underperforming as other NBFCs have done very well in the past few weeks. A decisively strong few candles are required to bring back the buying power & strength in this stock.
5. ICICI Bank (5.62%): This is one bank which seems to be better placed than others. It rests along the FIB support level and has respected it very well so far. So as long as 360+ levels are held, it could attempt 380+ soon.
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: Yet another Banknifty heavyweight that has been underperforming. It breached an important line of defence for bulls on Friday. Unless Monday brings some positivity, we may see it slipping further to the level marked below, with the worst case scenario being around 1100. Kotak is generally a strong stock, but the selling pressure on banking stocks in general may be due to institutional investors and fund houses offloading large cap stocks. And since institutional players have heavy holdings in banking stocks, we may be seeing that reflected on the charts as well.
2. SBIN: Last week, we spoke about how SBIN is trying to re-enter the uptrend that it had enjoyed, but this week it failed to do so. It has broken last week’s low on a closing basis which isn’t good. But then again, it might just be the general banking sentiment that’s lagging. Unless we see 190 acting as a strong support, we might see SBI slipping further.
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.
After some fairly stable movements this past week, we saw VIX closing lower. It’s still above 20, an important level that it hasn’t able to breach on a sustained weekly closing basis.
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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