Market Chronicles for the week ended 23rd 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 ended the 3rd week of October 1.4% in the green, forming an inside bar on the weekly chart. Our outlook is BULLISH.
Daily chart is sideways, and we can expect a resolving move in the week to come.
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
Trend
The trend is currently sideways, to up. Bias remains bullish.
Moving Averages
A quick snapshot of how the major Moving Averages are placed on the daily chart.
Ichimoku (D)
The index is currently resting on the tenkan-sen.
Nifty Intraday
Open gaps and key levels marked on the chart
Bank Nifty
Bank Nifty had a great week, ending 4% in the green. Now at a crucial level. Breakout likely, but caution advisable
Bank Nifty / Nifty (Relative Chart)
Serious outperformance in BN once the ratio breaks out above 2.15
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
Relative chart bouncing from a CIP level
Nifty Midcap 100
The index is at major downward trendline resistance, and 200 WMA. Breakout from this can bring good upside.
The relative chart saw a good pullback, now at a CIP level.
Currency
DXY
Once again challenging the resistance at the downward trendlines.
USDINR
In sideways consolidation, and long term trendline support.
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
Last week’s range: 11,000-12,000
Nifty has a range of 2,000 points for the October monthly expiry. That’s 2x last time, going up and down by 500pts on either side. That’s massive. As we have been discussing several times over the course of this month and on our individual Twitter accounts (linked at the end of the article), this coming week should be a decider. We can’t rule out a breakout/breakdown and that might be what the high OI figures are reflecting. Though what is most perplexing is that those higher strikes have insignificant premiums which aren’t ideal for option writers. So perhaps these are either “zero to hero” trades by larger retail traders or they are insurance trades or hedges.
Bank Nifty
Last week’s range: 23,000-25,000
Perhaps the first time ever on Market Chronicles, Nifty’s OI range is 2x that of Banknifty’s. We’ve double-checked the data, with data source being NSE India’s website. So perhaps this really is the OI structure, in which case Banknifty shows heavy consolidation. But here’s the thing – this doesn’t necessarily mean that we see a tight range. If Nifty has a range of 2000pts, perhaps larger participants have entered into long straddles in BN. This matches with the banking stocks we will analyse in the coming sections (due to resistances amidst strong uptrends). Given this, it’s hard to draw conclusions relating to the OI data.
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.
In today’s edition, we have used a lot of Fibonacci retracements. This is because many stocks are either retracing or have broken out and are nearing FIB extension zones.
On the chart front, we’ve used naked charts, for the most part, to display the price action better.
1. Reliance (14.90% weight): It’s evident how much of a beating RIL has taken this past week. Sub-2100 levels have acted as fantastic supports with prices bouncing up almost right after touching those lows. Even if Monday is negative, there is a strong probability that there will be sufficient buying to bring prices up at those levels. But objectively speaking, unless that level is held, we could realistically expect RIL to slip further, potentially testing ~2049 or even lower if momentum fails to pick up entirely. Though the length of the red candles shrinking is a positive sign. (Read the Basics of Dow Theory and trend by clicking here).
2. HDFCBANK (9.67% weight): After testing levels close to the previous swing high, HDFC Bank moved quite strongly, holding the two major indices well. However, it’s now facing some headwinds at the 123.6% FIB level. After a healthy gaining spree, the stock might be seeing some amount of profit booking, hence the slower movements.
3. Infosys (7.62% weight): Infosys performed fairly well after the sharp market-wide fall. But Thursday & Friday seemed to be particularly bearish, facing resistance at higher levels. With Friday being almost an open=high setup, Infy doesn’t look very reassuring. Really, the only thing it has going for it is the FIB support + 60RSI support. If that isn’t respected, it may test lower levels. But based on intraday moves, Infy has found quite a lot of demand at lower prices.
4. HDFC (6.43% weight): Both, HDFC and HDFC Bank are facing headwinds at the 123.6% FIB mark. This is quite interesting as they’ve both managed to do fairly well this past week so some profit booking may be expected. As long as the FIB hurdle is cleared, we may see some consolidation/bearishness in this stock, but HDFC is known for sharp, strong movements (in either direction). Thanks to this, it should be a key part of what happens with Nifty and the broad-market sentiment this coming week.
5. TCS (5.40%): TCS looks much better than Infy. Since Friday ended with a doji, it shows uneasiness at higher levels. As long as 2662 is held, we could see TCS attempt the 2700 mark once again. Trading above the doji’s high decisively will be very important. IT as a sector has been very strong for a long time so it isn’t inherently weaker. Broad-market sentiments will once again play an important role, not just with TCS but also with other stocks. The good thing with TCS is that it appears to be on the verge of a reversal, but seeing how sharply sellers have brought prices down from ATH is hard, especially because the buyback is what took TCS that high in the first place. We are cautious on the stock.
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: Kotak closed above the previously identified resistances of 1350-1360. But it is still within the danger zone, even more so with the 1400 psychological level looming above its head. The overall trend appears stronger than before and momentums seem okay, but the charts paint a very cautioning picture. It will be important to see how much money institutions are able to pump into banks.
2. SBIN: Similar to several other charts we have seen, SBIN too hinges at an important zone. It’s managed to close above the psychological resistance, something Kotak Bank wasn’t able to, but the Daily chart price action shows a fair amount of selling pressure & rejection of higher levels. So if 20+ levels are sustained, touching 210 sounds doable. But all that depends on whether SBI can hold on to the FIB support. Once again, it would boil down to how much smart money is invested in the stock & sector this week.
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.
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.
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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