Market Chronicles

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Market Chronicles for the week ended 26th June, 2020.

Our CAUTIOUSLY BULLISH outlook remains unchanged. The medium term uptrend that started in late March is still intact, till 10150-10280 is defended on the downside. Subsequently, 9800 is the next crucial level for bulls to defend.

Key levels to watch out for on the upside:

10500-10550 (61.8% fib + 2nd highest call writing as on 26th June 2020)²
10750-10950 (Gap) + 200 DMA at ~10900¹

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.

Recap

Nifty ended the last week of June up 1.35%. In the volatile week, we saw the index run into trouble with a cluster of resistance on Wednesday:

The index closed marginally above the 200 WMA, which if sustained is a very exciting development (Ref our trip down memory lane in last week’s article)¹

The 61.8% fib retracement that coincided with the upper bound of the rising wedge also acted as resistance midweek, and still hasn’t been taken out.²

Random musing: If you switch to line chart, you see a Cup & Handle Breakout+Retest, which is a bullish sign.

The momentum divergence that we’d mentioned in last week has not been negated yet and should still be considered cause for caution.

Gaps⁵

Here are all the major gaps to watch out for. Yellow boxes are gaps which have been closed, blue boxes are open gaps:

Moving Average¹

A quick snapshot of how the major Moving Averages are placed on the daily chart

OI Analysis⁶

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.

Looking at cumulative OI figures (of the four significant expiries coming ahead), we can see that the range is quite broad between 11000 and 9000.

The next expiry shows us that the range is expected to be between 10000-11000. This almost bullishness in the broad market is supported by the fact that put writing at lower levels has reduced drastically compared to what we observed in the past couple of weeks.

It appears that the July expiry 10400 CE is seeing a fair amount of option buying. This would indicate that many market participants expect Nifty to go above 10400, potentially on Monday itself. This along with the positive OI figures hint that the market may perhaps favour the bulls, ceteris paribus.

Heavyweights in the Nifty 50:

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.

1. Reliance (11.88% weight): After an extremely strong previous week, week ending 26th June 2020 was quite range-bound. While we saw spikes and strong positive and negative moves, it was largely restricted to intraday movements and investors were protected for the most part. Weekly charts indicate that it has closed at a lower level than last week’s close which may indicate bearishness at first glance, but it could just be profit booking in all likelihood. The Daily chart shows us how it has almost formed a base just above 1700 which is an important support level going forward.

2. HDFCBANK (10.39% weight): The banking heavyweight saw a fairly positive week with healthy buying pressure at lower levels. The week remained above 1000 which indicates a fair amount of bullishness despite high uncertainty in the broadmarket. At present, it faces resistance from 61.8% Fibonacci level at 1066. We would expect a strong few weeks ahead for HDFCBANK if this resistance is breached. Bear in mind that Nifty50 is at its 61.8% Fibonacci level, too. This means that if the broadmarket is successful in breaching said resistance, HDFCBANK is more likely to breach it with ease, too.

3. HDFC (7.20% weight): Interestingly enough, despite HDFCBANK’s seemingly bullish chart, HDFC’s does not look as confidence-inspiring. Resistance from 61.8% level is clearly visible and unlike many other stocks which indicated fair buying pressure this past week, HDFC shows a significant amount of selling pressure. If we see the mild negativity continuing, the 1700 level that the stock currently holds may be retested by the bears with the next support just above 1690 where the bulls may be active. Broadmarket sentiment will dictate the stock’s movements too, so while our view is not bullish on this stock, it isn’t particularly bearish either.

4. Infosys (6.35% weight): Thanks to some very strong movements by Infosys on Friday, it was successful in breaking out of the range we discussed last week (highlighted in red). Expect resistance for INFY above 760-765 with support at 740 and 728. The strong movements witnessed by this stock were also due to the IT sector doing well on Friday and were not entirely stock-specific.

5. ICICI Bank (5.39%): We saw some fairly positive moves by ICICI Bank during the week ended 26th June 2020. However, the resistance levels that were discussed last week (and marked on the two charts below) proved to be enormous hurdles for the stock to pass. On the Daily chart, we can see how it is at support and has formed a higher high and a higher low. At any close above 356, it should perform reasonably well. On a broader timeframe (Weekly), we can see that despite a resistance at 380, the stock seems to be comfortable above the 13MA, a bullish sign.

Volatility:

Perhaps the most surprising chart this time around is of INDIA VIX. This is because it has managed to breach the important support level at around 28. This is a very confidence-inspiring sign and may indicate favourable movements ahead. However, please consider that VIX does not move solely based on the chart’s support and resistances. Hence, keeping in mind that uncertainty still exists, it would not be appropriate to decisively conclude that VIX is stabilizing.

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) [another link you could give is 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.

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