Usually, when a tight range is built like this, you should expect a breakout from this situation. The trend is still rising, so the ideal breakout would be to the upside. GIFT Nifty might suggest some bias as the market is closed on Monday. So, taking that into consideration, you can try to take a position.
Levels for next week have been revised upwards. A higher breakout point is 23,500 with a minimum expectation of 23,610. Failure to convincingly cross this zone could lead to another consolidation week. Lower support remains at 22,900-23,300 zone so a dip into that zone during the week would be a buying opportunity. The upper limit for bullish expectations for this month remains at 23,800 (near the all-time high) and unless Nifty falls to test support (which it did not do last week), there is always a chance for upside.
The breakout point for Bank Nifty is also rising towards the 50,200 level. It needs to sustain above this level to sustain the upside. A drop below 49,700 will shatter the bullish hopes. Hence, both the trigger points are given and will sustain throughout this week.
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Enough about the level of near-term importance, let’s now turn our attention to the bigger picture. The analysis is almost the same as what I wrote last week. To quote from last week’s letter: “The price is too high but not enough time. This usually extends the correction and, on the Elliott Wave side, a complex correction may develop in the future. Now, this may be difficult to handle using the same considerations as before. One of the possibilities is the formation of a higher high, but this does not change the corrective nature of the move. This will be a new high of the bull trap type, so be careful. The low for this month may have been created at 21,265, but the path ahead may see several swings within the contours already established this month. All corrective swing lows were broken on the 4-day decline, suggesting that the upcoming move will have the nature of a correction.” A change that can be suggested here is the continuation of the active rally after the 4-day decline. This puts a bias in favor of some upside pressure, but still, it does not change the situation that such a move is a continued correction rather than a new one.
Hence, the advice to not be aggressive on the upside breakout continues. You can maintain the buy low policy but sell when you see a high. HDFC Bank and Reliance gave a little boost to Nifty last week and if that holds over next week, bulls can take comfort. Other banks are not really contributing but they are not dragging it down either. So, the key will be the banks and give us a clue that Nifty is heading for a breakout. If it doesn’t work out, weekly support will be tested. Nifty Next 50 stocks seem to be in a much better situation and if they continue to move, it should be a vibrant market without a big push from the major indices. This is one thing to watch this week. Figure 2 shows some of the big moves in Nifty Next 50.
So it seems like you need to cast your net a little wider to catch some fish. This is not the case for index traders, who can play strangles and ratio spreads and then switch to backspreads when trend signals appear. Equity traders, however, should look for stocks that are relatively outperforming and get in quickly. But one thing is certain: don’t try to take a short position because there is no signal to do so. In the markets, not doing the wrong thing is often just as important, if not more so, than doing the right thing.
In last week’s letter, I discussed how momentum signals remain intact and a buy-on-dip approach remains viable in the near term. This week, I present a sentiment indicator plot on the weekly chart of the Nifty, which I sometimes refer to when the evidence becomes a bit murky. Chart 3 shows this sentiment indicator. As of last week, it read “hopeful,” which I believe is an accurate representation of current market sentiment. On the daily chart, it displays a neutral rating, which is also a correct interpretation of current sentiment.
In the case of neutral or optimistic assessments, it is clear that the market is sensitive to news information. We see that the market is currently choosing to ignore or ignore bad news. The rapid recovery from the June 4 low is a clear indication of that. Therefore, any news that is currently considered positive can tilt the balance in favor of a continuation of the uptrend. Price points that indicate when that will happen are already defined. However, emotions cannot ignore the power of cycles, nor can the time element of a correction, which is also explained through the discussion of complex corrections. We encourage readers to re-read that part of the letter in order to develop the right perspective to deal with the price movement next week.
The budget will be the first document from the new government and the budget meeting is likely to be convened in the third week of July (the first meeting ends on July 2nd). So understand that you may have to wait a few more weeks for more concrete evidence to bet on the trend. Also note that around that time, the results for the June quarter of the current financial year will start to come in, giving us additional information on corporate performance. This, coupled with the budget proposal, may give rise to new contenders and sectors for us to focus on. I don’t think the big players will really move aggressively until this combination of events occurs. Until then, we may see range trading continue and it all boils down to stock specific moves. These tend not to last too long if there is no tailwind of market movements. So the advice remains the same as last week. Watch the stock specific moves, exit your funds when you make profits, avoid short selling and don’t plan any big position plays for now.
CK Narayan is a technical analysis expert and the founder of Growth Avenues, Chartadvise, NeoTrader and Chief Investment Officer at Plus Delta Portfolios.
The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
