Market Chronicles for the week ended 8th January, 2021.
Nifty ended the first week of 2021 2.35% in the green. Breadth remains healthy, and we remain BULLISH going forward. Any dips should be considered buying opportunities.
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/
Big Boys
So far in January, FIIs net bought 3234 cr of stock, while DIIs net sold 2506 cr of stock.
Source: StockEdge
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.
Note: Our directional views are subject to sudden and drastic change mid-week. For anyone who wants a daily update on the stock markets, we suggest you follow us on Twitter, for some more frequent insights. Our handles are @anoshmodyy and @MarketsWithKR
The daily chart shows an RSI divergence developing, and also has some key support levels marked, to watch out for in case of a deeper correction.
Moving Averages
A quick snapshot of how the major Moving Averages are placed on the daily chart. Worth noting how 20 MA arrested the fall with ease.
(Red = 200 MA; Purple = 100 MA; Blue = 50 MA, Yellow = 20 MA)
Ichimoku (D)
Ichimoku (W)
Nifty Intraday
Key levels marked
Bank Nifty
Bank Nifty has a precarious setup. On the one hand, the index is just a few % points away from a fresh ATH. It has developed a bearish RSI divergence on the daily chart. While we remain hopeful, the possibility of a severe correction cannot be ruled out
Trendline on the daily chart can be used as reference
Bank Nifty vs Nifty (Relative Strength Chart)
The RS chart of BN is trapped beneath a major resistance level. Major support lies lower at the August highs, while major resistance lies higher at the CIP level as marked on the charts. Any major outperformance in BN will likely be seen once that level is breached to the upside
Nifty Midcap 100
The midcap index hit a fresh ATH this week, with the RS chart vs Nifty50 breaking out from a flat top base. This could be the beginning of outperformance by midcaps!
Nifty SmallCap 100
Smallcaps have great catchup potential with midcaps, as the index is still ~28
% below its previous high. The RS chart is ready to breakout of an Inverted Head and Shoulders pattern.
PS: the green path drawn is indicative
Nifty 500
The broad market measure of Indian stocks also did very well in December, and this lends more faith in this rally. The index does look extended, but no sign of a top is immediately visible.
Currency
DXY
The DXY has had quite a fall after breaching 92. The 88-89 zone would be the most logical level for it to reverse its downtrend. In general, excessive short USD positions must be cautious here on out.
USDINR
The currency pair does not seem immediately keen to breach the short term support at ~72, and has been unable to give a proper follow-through to the breakdown from the long term trendline. Can consolidate at this level for a while.
OI Analysis 6
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
OI has changed quite interestingly this past week, with Thursday showing us highest OI for calls and puts at the same strike. This would’ve indicated a larger move, which Friday showed.
From the below information, we can see that the put side is relatively calm with highest OI and change in OI at 14,200 which may indicate a strong support. But the highest OI change on the call side is at 14,300 which is interesting as it’s an ITM (in-the-money) strike.
The chart below shows us how put OI is very large which may indicate a large amount of put writing by larger players. We can see that put OI change is 14.3 million while call OI change is just 1.6 million.
Bank Nifty
Banknifty appears comfortable above 32k for now. While there is a significant change at 31800 strike, intraday price action has shown good support above 32k.
The highest call OI of 33k may seem far-fetched, but a 1000pt move for Banknifty is just 3% which is very possible.
Unlike Nifty which showed huge put OI, Banknifty’s calls and puts appear to be relatively better balanced.
Heavyweights in the Nifty 50:
Let’s look at some important stocks in Nifty50 that collectively make up around 42.40% of NSE’s flagship broad market index. This figure is lower than last month’s which means that the weightage occupied by the top five stocks has reduced. A significant change is that Reliance is back at the top, HDFC Bank is now #2! Infosys has also moved up one place, coming in at #3.
On the chart front, we’ve used naked charts, for the most part, to display the price action better.
1. Reliance Industries: After consolidating above 50MA, RIL fell quite sharply this week but has shown some positivity on Friday. Based on the chart, generally the 200DMA (in red) has been a very strong support zone. So even if the stock moves further down, it is likely that this level would be respected. Momentum appears to be a major hurdle that the stock is facing, but with Thursday & Friday being very high delivery percentage days, larger players may be accumulating (or distributing) at this level. (Read the Basics of Dow Theory and trend by clicking here).
- HDFC Bank: HDFC Bank continues to move within the two zones, trend is still uncertain and the stock is consolidating. If we are to see the bull run continue, we could expect HDFC Bank to breakout above the resistance zone.
- Infosys: IT as a sector experienced a good day on Friday after some profit booking. Infosys appears to be have broken out from the range it was in, took support at the range’s first candle’s high and made a fresh ATH. TCS earnings release will have a material impact on sentiments as it could set the tone for Infy which also has its earnings soon.
- HDFC: Created a fresh ATH, but appears to be facing a fair amount of profit booking/selling pressure. The reassuring thing was how it recovered from Friday’s lows which may be a positive.
- ICICI Bank: The bank created a fresh ATH, but faced selling pressure almost immediately, now trading below previous high. The blue line should act as a tough resistance zone for the stock but 525-536 should be a good short term support if no major trigger is seen.
Heavyweights in 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.
- Kotak Bank: Kotak Bank took support from a previous resistance. This is also right around the previous high, which should act as a strong support zone to keep the bull trend intact. If the price closes below this level, it may become quite a stiff resistance for the stock to breach.
- SBIN: SBIN Weekly chart shows important resistance around 288. A good trigger may push the stock above this level which should be a positive sign for the stock. Weirdly enough, the stock is still nowhere near ATH levels.
Volatility:
It’s quite interesting to see how VIX appears to be forming a new base. If this is the case, it may mean a new normal for VIX.
Due to VIX behaving weirdly, option prices are quite oddly priced. As a result, many times despite being directionally correct, an options positions might not have yielded returns as expected.
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) [https://www.investopedia.com/articles/trading/08/average-true-range.asp] of the stock would be narrower.
Moving Averages decoded: https://www.investopedia.com/terms/m/movingaverage.asp 1
Demystifying the art of Fibonacci Retracements: https://www.investopedia.com/terms/f/fibonacciretracement.asp 2
The basics of Dow Theory: https://www.investopedia.com/terms/d/dowtheory.asp 3
What are trendlines?: https://www.investopedia.com/terms/t/trendline.asp 4
Gaps made easy: https://www.investopedia.com/terms/g/gap.asp 5
Open interest explained: https://www.investopedia.com/terms/o/openinterest.asp 6
Disclaimer:
We, Anosh Mody & Krunal Rindani shall take no responsibility for any profit or 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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