Market Chronicles for the week ended 9th October, 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 had an incredible rally this week, ending 4.4% in the green, after a clean follow-up to the bullish harami candlestick pattern that we discussed last week.
The recent high of 11795 was taken out, and we are now just 4% off our All-Time High on the Nifty50!
Our outlook is BULLISH. It appears as though we are all set to reclaim that elusive All-Time High soon.
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
On the daily chart, we see that once the trendline resistance was cleared, there was no stopping Nifty!
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.
Moving Averages
A quick snapshot of how the major Moving Averages are placed on the daily chart.
Ichimoku (D)
Upward sloping tenkan sen and kijun sen, free chikou span, and price above the cloud, which has just turned from a minor red patch to green. Overall seems like a bullish, buy-on-dips setup.
Nifty Intraday
After a brilliant one-way-up rally, we see a minor bearish RSI divergence on the hourly charts, which could cause a pullback till ~11800.
Bank Nifty
Bank Nifty was the star performer this week, gaining 7.2%! It not only cleared the fib resistance at 22,925 but is also challenging 200 DMA with massive strength. Although BN seems very bullish, the same thing had happened last time at the end of August, and 200 DMA had proved to be a fatal resistance for BN. Hence, for more risk-averse players, we would advise caution until a decisive bullish follow-up is seen.
Bank Nifty / Nifty (Relative Chart)
As indicated last week, Bank Nifty (+7.2%) showed excellent outperformance vs Nifty (+4.36%). The pair chart showed an amazing bounce from the support level and bullish RSI divergence. From the daily charts, we can see that this momentum is likely to continue till 2.13 (currently at 2.00)
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.
The relative chart failed at a critical resistance level and can underperform in the short term.
Nifty Midcap 100
The index is at major downward trendline resistance. Breakout from this can bring good upside.
The relative chart failed at a critical resistance level and can underperform in the short term.
Currency
DXY
The dollar index seems to be rejecting the retest of the downward trendline and is moving lower, and breaking down on the daily chart too.
USDINR
Moving lower from the breakdown retest. Next cushion for the currency pair will be at 72.
Random musing: Here is a breakdown of the USDINR on the monthly chart (Monthly candle incomplete)
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
At 1,500pts, this is possibly the widest range we’ve seen with Nifty so far. With the strong increase in OI on the 12500CE, it may be a good “hero or zero” trade for many. This is because, at just 2.95, the premium isn’t enough to justify the risk associated with writing this put. That is unless it’s part of an option strategy. Premiums on the put side have understandably gone down after a tremendously positive week + heavy put writing at lower levels. This unusual OI makes it quite difficult to decisively interpret what may be about to happen.
Bank Nifty
BN’s OI structure is quite interesting, too. The 2,000pt range isn’t unusual, but the fact that puts have a pretty high OI is. This could be participants feeling comfortable at levels above 22,500 or so. Last week, 23,200 proved to be an important level for the banking index to hold on to. That level wasn’t really highlighted in the weekend OI analysis, so we have a feeling that the structure may change as the week progresses. Best to stay alert.
Heavyweights in the Nifty 50:
Let’s look at some important stocks in Nifty50 that collectively make up around 44.02% 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 September 30th 2020. As we had discussed last time, TCS has gained on ICICI Bank to break into the Top 5. RIL has performed quite well, too.
On the chart front, we’ve used naked charts, for the most part, to display the price action better.
1. Reliance (14.90% weight): Reliance showed us promising signs mid-week due to events relating to the oil industry, but it wasn’t able to hold on to those levels and slipped drastically after. As a result, we can see it consolidating and moving sideways since quite some time. Perhaps this is due to the overwhelmingly strong move witnessed earlier that is making the stock a bit pricey for investors to justify and hence we may be seeing a hindered demand. For Reliance to get back to its gaining spree, we reckon it has to decisively close above 2250. (Read the Basics of Dow Theory and trend by clicking here).
2. HDFCBANK (9.67% weight): After underperforming during the initial post-COVID rally, HDFC Bank has more than made up for its laziness earlier by touching near-ATH levels. This is quite impressive, as the banking sector wasn’t this strong. And what’s even more surprising is that we haven’t seen even a minor pullback or profit-booking candle since the price first jumped. Impressive stuff.
3. Infosys (7.62% weight): This past week was especially kind to IT stocks. Infy, TCS, Wipro have all fared exceptionally. This makes it a bit difficult to accurately analyze the stock. But at such high RSI levels, we could expect a slowdown in momentum, even if it’s brief.
4. HDFC (6.43% weight): HDFC doesn’t appear as strong as HDFC Bank. While its moves were much stronger than Bank’s, it seems to be facing tremendous headwind at the supply zone around 1947. This isn’t a good sign, especially with the 2000 psychological mark being rejected. If overall sentiment in the market is strong and buyers are leading the way, we could expect HDFC to continue performing well. But be careful as its current setup isn’t very reassuring.
5. TCS (5.40%): TCS managed to fare quite well this past week with lower levels being rejected well. Intraday volatility was sufficiently high, but a bullish bias could be observed overall. The news piece that really set TCS on a different trajectory though is the buyback and financial result. At 3,000/share, the buyback price is very strong and prompted the stock to open gap up the next day. This was great timing as the stock seemed to be showing clear signs of slowing momentum, but it was able to pick that up real quick. On the day of the buyback announcement move, speculators seemed to have made a fair profit as we can see TCS rejecting highs, possibly due to profit booking. Should be interesting to track this stock till the buyback is executed!
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: The stock, while positive, hasn’t been able to enjoy nearly the same amount of positivity as its peers. However, with it resting above support, three outcomes could be possible, all of which are highlighted in the below chart. Unless we see it trading decisively above Friday’s open=(or high if gap up) on Monday, we could expect a slow day for the stock.
2. SBIN: SBIN hasn’t been able to be that strong either, except for Friday’s candle which was quite spectacular, edging close to 200 after struggling to grip on to 190 levels so recently. But with the stock around a supply zone now, it will be important to see how it holds up as Friday’s profit booking may happen on Monday if the broad market isn’t strong enough.
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.
A higher VIX despite a bullish market indicates that bulls are expecting the market to continue doing well if we go by the principle of VIX being the one year forward returns of the broad market. This hypothesis works well with the fact that despite price levels being higher, expected volatility by market participants is still reasonably high.
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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