Nifty: The Music Will Stop

Sat, 6 Feb Momentum Moves

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   SGX Nifty   

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   Closing   

The Week Gone By

The Dream Budget cheered Dalal Street. The NSE Nifty hit all-time high of 15,014 on Friday.

Banking and financials top the charts this week.

Other big gainers were PSU (+25%), Bank Nifty (+17%) and Financial sector (+15%). We had highlighted this in our previous Momentum Moves video.

The Week Ahead

February has started in a party mode for the bulls. The Nifty gained 10% post budget and hit 15,000 for the first time.

This historic move indicates that February is the month for the bulls and perhaps the rest of 2021 too.

Bulls can continue with the momentum in first half of the next week. We might see the writers of 15,000 CE (Call options) come under pressure once the index sustains above this key level.

The music might pause in the later half of the week, probably Tuesday or Wednesday. These are the 224% and 261.80% Fibonacci Time cycles of the recent falling days from 14,753 to 13,596.

The Music Will Stop

The stellar run of more than 10% from 13,600 to 15,000 might pause in the resistance zone of 15,070 to 15,450.

Though this range is only 2-3%, it's better to be safe than sorry.

Nifty Weekly Chart

 

The chart above is the weekly chart where the index is trading in rising channel formation.

Nifty had taken support right at the bottom of rising channel ahead of budget. The fast and furious move took to back towards the resistance zone.

The Fibonacci projection of 14,753 to 13,596 at 127.20% and 161.80% resistance zone is placed at 15,066 and 15,468, respectively.

The RSI (Relative Strength Index) is forming lower high whereas the index is a forming higher high. This indicates a negative divergence which is a sign of cautious for the bulls.

 

While if look at the second chart above, index here as well, is trading at the resistance of Bollinger band.

Bollinger Bands are plotted at a standard deviation level above and below a 20 days simple moving average.

Index is trading right around the upper band of Bollinger Band which is placed at 15,080, coinciding with the 127.20% Fibonacci retracement.

The Average Directional Index (ADX) oscillator in the panel below the chart is not a sign of a strong bullish trend.

The Average Directional line (green dotted line) is sloping southwards and much below the previous high here.

The only case which can go in bull's favor is the Positive Directional Momentum (blue line). This has crossed above the Average Directional line and can help continue the trend.

Looking at both the charts, we believe from the next week, bulls should be cautious. Traders should trim their leveraged positions early in the week.

Auto Sector to Underperform

Auto stocks have been the favorite counters among traders these days, especially Tata Motors and Bajaj Auto.

Nifty Auto Chart

 

On the similar lines of the technicals we discussed above, the Auto Index is also trading at the resistance of 127.20% Fibonacci level which is placed at 11,065.

Adding to this, the index also faced resistance at the upper band of Bollinger Band and reversed.

The psychological resistance of 11,000 will also be a hindrance for the bulls. The triple negative divergence on RSI strengthens our view of a reversal.

Auto might the first sector we believe to end the party and might head back to sub 10,000 levels.

Conclusion

The music is likely to stop in the markets and we might see the Nifty reversing next week from the resistance zone of 15,070-15,450.

The auto index charts are indicating the party is over and one should look to book profits in short term.

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