TFP presents to you ‘Market Chronicles’. A 5-minute roadmap for the week ahead.
For the week ended 12th June 2020
Nifty ended the very volatile 2nd week of June 1.5% in the red. Major resistances that the index faced are shown in the charts below:
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/
Monthly Tenkan Sen and Kijun Sen on Ichimoku
The very powerful Ichimoku indicator explained: https://www.investopedia.com/terms/i/ichimokuchart.asp
200 Weekly Moving Average
50 Monthly Moving Average
Moving Averages decoded: https://www.investopedia.com/terms/m/movingaverage.asp
The Path Ahead
Nifty is filling open gaps quite efficiently. On Friday, 12th June, we saw an almost perfect example of gap-filling:
The short term trendline is intact, as is the HH-HL chart formation.
Towards the upside, there are many big open gaps so the ride to the upside is bound to be choppy, and fraught with resistance.
Towards the downside, there is support at 9320, and defending 8800 is very essential to preserve the HH-HL.
The basics of Dow Theory: https://www.investopedia.com/terms/d/dowtheory.asp
What are trendlines?: https://www.investopedia.com/terms/t/trendline.asp
On the hourly time frame, Friday’s price action was extremely bullish with 6 consecutive green candles!
A quick snapshot of how the major Moving Averages are placed on the daily chart:
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 by their own.
Looking at the Nifty Open Interest figures (data from NSE website), we can see that the expected range for the coming trading week is expected to be within the two important psychological levels – 9,500-10,000. OI on 9000 & 10500 strikes are also significant and will also act as important barriers.
The way this works is that high-volume market participants would have sold strangles at strikes which leads to higher OI.
The OI of Nifty 9800PE 18-Jun indicates considerable put writing at 9,800 (prices going down combined with rising OI). This indicates that as of Friday, option writers are expecting Nifty to close above 9800 in this weekly expiry.
Put writers would pocket the entire premium at any price at or above 9800 and hence a higher OI indicates that many market participants are confident about the 9800 levels. Because prices have fallen due to increasing volumes, it means that there was a lot of option writing/selling taking place. Had the prices increased with an increase in OI, it would mean that option buying is taking place indicating that either someone is taking a massive position as a hedge or market participants are confident of the option expiring in the money.
Open interest explained: https://www.investopedia.com/terms/o/openinterest.asp
Heavyweights in the Nifty 50 Index:
Let’s look at some important stocks in Nifty50 that collectively make up around 41.21% 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.
- Reliance (11.88% weight):
Appears to be well-placed. Unlike the broad-market and several other stocks, on Friday RIL was very strong and concluded the trading session on a positive note. Right now, Jio platforms are yet to receive investment from either Google or Microsoft which will be the most important event to look out for. On the technical side, RSI is above 60 which indicates good momentum, something which will be required to breach the resistance at and above 1,600 levels. Weekly data makes buying pressure at lower levels apparent and although the Open = High, the sentiment for the stock seems positive. Expect a strong move coming if a new ATH is formed.
- HDFCBANK (10.39% weight):
Like many other stocks, Friday indicated strong buying for HDFCBANK. However, it is approaching important resistances, namely 992, 1,000 psychological level, 1,017 and 1,035. 975 is a strong support level, with a 950 test likely if the sentiment is bearish. Weekly charts indicate rejection of higher levels and gap resistance at 1,069. That said, bears seem to be losing power at lower levels, similar to Reliance, and hence it could be a range-bound week ahead.
- HDFC (7.20% weight):
The stock is approaching heavy resistance at 1,817 and 1,854. If these levels are breached, a positive sentiment might allow the stock to test 1,920 once again. Weekly data of HDFC highlights indecisiveness (longer wicks, gaps, narrow bodied-candles). If this is to continue, expect high volatility with possible gaps in the coming trading sessions.
- Infosys (6.35% weight):
Before we jump to the technicals, please note that Infosys was most recently involved in a new lawsuit related to racial discrimination in the U.S. This may result in the stock opening at a gap down on Monday, so please trade with caution. Coincidentally, this negative news for INFY comes right when the stock faced Fibonacci resistance last week. Given this, if 680 levels are sustained, the stock may be range-bound between 680 and 720. However, if it opens at a steep gap down and negative sentiments for the week, we could be looking at sub-640 levels.
- ICICI Bank (5.39%):
The bank was recently recognised as a top retail bank in the country, however, the stock prices have not performed too well this past week. As far as technical patterns go, this was largely because it was approaching an important resistance zone. The stock did take support at one of the gaps and is now showing a reasonable amount of buying pressure (long lower wick on the chart). It is also in the process of forming a W pattern (where the stock price movements resemble the letter ‘W’). The coming week might potentially be a bit volatile for the stock, but if 340 levels are respected then we could see the stock performing fairly well.
Volatility
INDIA VIX has been consolidating between 28-31 levels. This is not too pleasant because, despite the broad-market performing fairly positively in the past couple of weeks, volatility has not yet stabilized at “normal” levels of 10-25. This indicates that there is still quite a bit of volatility in the markets and understandably so. Given this, option prices and ATR (Average True Range) might still not be stabilized. So for the coming week, expect choppiness in pricing to continue.
Conclusion
Amid the rising volatility, based on what the charts say, our conclusive outlook remains cautiously bullish over the next few weeks. Swing positions may require attention due to the choppy price movements. At this stage, sentiments are moving the markets a lot, so expect unconventional and knee-jerk reactions to news events.
All the information above has hinted as to 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.
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.
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Very helpful thanks👍🏻