Market Chronicles for the week ended 21st November, 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 0.62% in the green. Bulls were in control for most of the truncated week, save Thursday’s expiry session that witnessed a selloff.
We maintain that the markets are in a firm uptrend, and we remain BULLISH going forward.
On the weekly chart, the index cleared a hurdle, i.e. the trendline joining the 3 previous tops. In case of any major pull back, 12430 and 12250 are areas of support to watch out for
On the daily chart, the index is at the top of a parallel channel, and can face some short term turbulence
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
Moving Averages
A quick snapshot of how the major Moving Averages are placed on the daily chart.
(Red = 200 MA; Purple = 100 MA; Blue = 50 MA, Yellow = 20 MA)
Ichimoku (D)
Ichimoku (W)
Nifty Intraday
12750 TO 12960 are the levels to watch out for a decisive move!
Bank Nifty
The index ended ~2.2% in the green. Given the phenomena rally in the last 3 weeks, we might see a pause here. The daily chart shows a bearish RSI divergence, which will be negated above 29784. A few open gaps are marked on the downside.
Bank Nifty / Nifty (Relative Strength Chart)
The relative strength chart has formed a bearish RSI divergence, which will be negated above 2.3
Nifty Midcap 100
The tide seems to be changing for midcaps, as the index broke out of a crucial level.
Nifty Midcap 100 vs Nifty 50
The relative strength chart is still range bound, and serious outperformance can be expected in midcaps after the range breakout!
Nifty SmallCap 100
Good breakout in smallcaps, a follow through above this week’s high will confirm the breakout.
Nifty Smallcap 100 vs Nifty 50
The relative strength chart is still range bound, and serious outperformance can be expected in smallcaps after the range breakout!
Currency
DXY
The dollar index looks like it’s just waiting to slide below 92. When that will happen is anyone’s guess
USDINR
The currency pair moved lower from a historical CIP level. 74.4-74.5 remains a crucial resistance zone
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
Last week, put OI was right around CMP, but this time we can see that it’s dropped to 12k. Naturally, with premiums of 4 points, it isn’t lucrative for option writers.
This means that the 12000PE may be part of a hedged strategy, potentially along with 12800PE.
Overall, highest call OI has come down from 13.5k to 13,000 which will be a tough level for bulls to breach, especially since Reliance has been underperforming.
Bank Nifty
Interestingly, BN’s highest call OI is just 300pts away from CMP. This may mean that unless the euphoric positivity continues, BN may see some profit booking.
A lower-bound of 28,000 (or 1,200pts away) seems slightly aggressive when compared to NIfty’s lower bound which is ~860pts away. This might be due to overperformance by banks and overall strong sentiments.
Heavyweights in the Nifty 50:
Let’s look at some important stocks in Nifty50 that collectively make up around 43.68% 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. The only culprit for this is RIL which underperformed severely.
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 (13.24% weight): This is the first time since July where we are seeing a weekly close below 1900. A possible news-based trigger for this is the announcement of the completion of retail division’s fundraise activities. Ironically, even when the various fundraise news came, the stock never turned decisively positive. The stock doesn’t appear very bullish, though it is at an important FIB level. If breached, we could see the 1837 mark again. Below that, 200DMA. Intraday selling pressure remains to be strong. Due to Reliance’s bearishness, Nifty hasn’t attempted 13k yet. In fact, despite the broad-market enjoying euphoria, Nifty is dragged by the stock. (Read the Basics of Dow Theory and trend by clicking here).
- HDFCBANK (10.25% weight): HDFCBANK has pretty much moved within a box since the past two weeks. This is understandable as it tests higher levels and allows profit-booking. As long as the gap at around 1350 is held, the stock should be controlled by bulls.
- Infosys (7.74% weight): Infy has seen some mixed moves this past week. The IT sector as a whole wasn’t bearish, but Infy did witness some selling pressure. As long as the FIB support is held, the stock should be a favourable pick. Add to that, Friday’s candlestick pattern shows good support from lower levels despite the sector facing headwinds.
- HDFC (6.87% weight): HDFC is showing initial signs of weakness. It has moved sideways this past week and Friday’s candle close shows a clear rejection of higher levels. HDFC has historically struggled to move up sharply unless it’s the stock’s day. Generally, the stock consolidates before a spike but then sees a pullback. If the broad-market remains to be stable & bullish, we may see something similar happening with HDFC, too
- TCS (5.58%): TCS has moved sideways for the better part of this month, but since it now rests at the 50DMA (not pictured here), it shows good promise as long 2640-2600 are held. In order for TCS to move up, either there will have to be a news trigger or IT as an industry will have to continue gaining like it did not too long ago.
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.
- Kotak Bank: Kotak continues to be arguably the strongest performing bank right now. The past week has been filled with hiccups for broad-market, but we can see consistent HH-HL being formed on Kotak’s chart. This is a strong sign. Since it’s at ATH, it’s hard to decisively say how long this rally would continue. Guesstimating bottoms seldom works.
- SBIN: while not traditionally the strongest, SBIN bulls have shown strength today after recovering from the day’s low, bouncing up right from the FIB level. As long as the level is held, SBIN could continue recovering. It’s important to note that while many major stocks are at/around ATHs, SBIN isn’t even halfway there. So it has quite some way to go.
Volatility:
Nifty closed this week +0.5% but VIX continues to be flat, recovering from lows. This is justified as the past week has been quite volatile and choppy.
Closing below 20 on a weekly basis is also a positive sign.
Since VIX is derived from option prices, it is possible that the options may be mispriced to factor in the uncertainty along with other elements. Or there could be something cooking. Either way, it’s a great market to learn more!
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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