Long-term index trend & momentum: Technicals for week ending

Nifty Weekly

Still no change to previous week’s. Evidence still shows that Bonds or Gold might generate better returns than the Nifty index over the coming months.

Observations (charts below):

So far price action of this month has been within last month’s high & low which is called an inside month. If this continues for the rest of the month, then expect a volatile move in either direction.

On the daily chart it is clearly visible that the 8k zone on Nifty has been visited several times in the past and has acted as Support & Resistance. A break above 8k would be a positive but till then better to wait it out. Similar situation for the 17k zone on the Bank-Nifty.

The Nifty/Bond ratio chart is still below its declining 40 week moving average and we have a similar situation across the broader indices. Common theme in the past big bull markets has been that these ratios should be going up. So far we have not seen this happen – Better to wait it out before committing.

Most of the broader indices are trading above their respective 40 week moving averages but that is not the case with the sectoral indices. When both these reading have hit the full score we have seen start of major uptrends. Till that does not happen looks like we might just be in for a range-bound scenario with moderate/low gains over next few months.

The Gold divided by Nifty and 10 Year bond index ratios are rising and above their respective 40 week MA’s indicating that Gold could be a potential outperformer over the coming months. Risk to this view is if Gold falls below its 40 week MA.

Broader indices seem to be under-performing the Nifty index but when compared to the 10 Year bond index – the broader as well as sector ratios for majority indices are below their respective 40 week MA’s. Which means that Bonds are beating almost every index out there. (Refer Weekly Relative Strength Charts).

And finally on the shorter term time-frame – last chart suggests that FII net long index futures positions have fallen below their February and April levels suggesting that they are positioning for a pause or a fall in coming weeks.

To conclude – the weight of the evidence still suggests a stance to the neutral to bearish side over next few months, while the most important point to look for will be if we can breakout and sustain above 8k on the Nifty and 17k on the Bank-Nifty.

Nifty Monthly & Daily chart :