Fine this week on the technical charts: Stock-based action to rule

It was a mixed week with hardly anything happening. The only notable feature was going over 18,000 points and the ability to stay above that until the end of the week. It should have produced more upward action but it didn’t. Profits accumulated for two sessions through gaps but bulls could not build on that advantage much. This encouraged the bears to try their hand at pushing lower prices but they failed in that attempt and the market saw some improvement towards the end of the week. The action of the week ended up looking like shown in Figure 1. But the weekly candle was better placed and you can take comfort from that more than anything else.

Part of the reason is the lack of enthusiasm shown by the Bank Nifty which dragged through the week even as several bank leaders tried to rally. We need to see much better action coming from there if Nifty has to move forward. Last week I had also mentioned that if banks were not going to take a break then other sectors would have to perform. The metals surprised the week ahead while public sector respondents (including PSU banks) were in good shape. It seems that sectors like industrials and manufacturing may continue to perform well in the coming week and may keep the Nifty alive. Two weeks in a row I have been looking for banks to get through but they have been disappointing. The setup in the leaders is still not strong enough to create the necessary push. One State Bank of India will not be able to push the needle too much. So keep an eye on the private banks and see if they move, because without them in action, the banking sector will be dull and the Nifty may not get the push it needs.

Many are hopeful of a revival in IT and medicine, but here too it seems to be a big fight. The IT package results were very ordinary and hence did not do much for the sector and hence could not move the Nifty much either. When I analyzed the chart of the index a few weeks ago, I had said that prices were approaching support and could go higher. Figure 2 shows an updated version of the same diagram as before. Certainly, a good support level should have produced a better bounce from it than what we see on the chart here. To me, this seems more like a short cover rather than a new purchase. Without new purchases, no stock can rise much. While the major leaders have shown some bottom buying, the mid-cap segment is still under pressure from IT. I would expect this sector to be a player if the market goes down. So avoid langar here.

A similar situation exists in the field of pharmaceuticals. Here, too, expectations for a rally continue to be high, but the stock is having none of it. I had mentioned earlier that there are only two stocks from this space (Cipla and Sun Pharma) which are in play while the rest are jockeying and some are even falling. Maybe we’ll see a slight improvement in Granules but that’s about it. Hoping for a development in the pharmaceutical sector would be silly as there is absolutely no evidence that it has been set up on the chart. I mean trends of a consistent type – not a minor increase now and then. Avoid, except for the first two items mentioned.

Metals, as mentioned before, surprised by holding a good rally. But looking at the stocks within the metal index, one is again left with doubts about the future prospects. JSPL always shows higher beta but for rest it is not a happy environment. Tata Steel came out with a roaring success but has spared its blushes so far. But I don’t think it can survive any downward pressure on the sector if that happens in the coming days. So this is another sector to avoid for purchases.

So, what might be of interest to buyers might be auto stocks. M&M and TVS Motor are leading the pack with great trends but it seems to me that most people are butting their heads at Tata Motors which is not moving! Sometimes people can be such a prisoner of habit! Allied stocks like Apollo Tires and Bharat Forge are also rising to new highs and should be watched as there is some bullish action going on there. Figure 3 shows the situation at TVS Motors and hardly anyone seems to be talking about it.

Cement could be an area to watch next week and collectively they look set to pay a visit. Figure 4 shows an ersatz index created from the prices of the top cement companies, and we can notice a trend line break this week. Ambuja should be a good bet for longs.

Of course, one cannot comment on the status of movement in PSUs and some other financials. After June’s quarterly results, I had mentioned that Federal Bank would be a good winner, and the stock continues to perform excellently. It has already risen 30% since then. SBI is doing great and has reached new heights since its inception. Results are yet to come, but given the strong numbers of most other banks, there is no reason to expect anything soft. Therefore, langar can be made here as well. A bad result has led to the development of Bandhan Bank but the dig in this has been weak for a long time and looks to be weak going forward. SamfartamaĆ°ar used to be RBL bank, but it seems to have corrected the policy and is now pulling up lots of volumes that point to some kind of revival ahead.

Option traders generally work together in Nifty and Bank Nifty. But in the last week or two, that trend has changed. Bank Nifty attracts sellers of calls (limiting the gain), while Nifty attracts sellers. PCR has consistently remained above 1 for Nifty and below 1 for Bank Nifty. This is one area to watch for any changes in trends this week. Figure 5 shows the change in OI for Bank Nifty by the end of next week. Note strong action in Call shorts (blue bars).

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