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TraderSmith - Monthly Big Picture November 04 2021

Author: Pawan Jaiswal

November 04 2021 | Reading Time: 10 Minutes
In the first half of October, the index almost moved in line with our expectations and recorded a new all-time high of  18,604. Afterward, it witnessed profit booking at higher levels and fell sharply in the second half of the month.  
 

 
  • In October, the benchmark index, Nifty50, recorded a new all-time high of 18,604 and turned volatile later. Last  month’s price action formed an “Inverted Hammer” like candlestick, with a higher-high and higher-low price struc ture. RSI and MACD, technical indicators, are trending upward with a positive crossover on the monthly chart with  strong momentum. Another observation on the monthly RSI chart is that it has reached a historical level and  crossed the RSI trendline connecting the high of 2008 and 2014. 
 
  • On the weekly chart, the index traded with strong bullish momentum and formed bullish candles in the first two  weeks of last month. However, profit booking in the second half of the month weighed on the sentiment, and the  index formed an “evening star” like candlesticks on the weekly chart. Apart from price action, the momentum  indicator RSI is trending in a bullish trajectory, but now its slope has changed its direction and is currently trending  downward. Furthermore, another technical indicator, ADX, on the weekly chart indicates that the market may not  cross a recent all-time high in the near term.  
 
  • Likewise, in the second half of the month, the benchmark index formed a candlestick pattern and afterward start ed trending in a downward trend on the daily chart. It has already breached its short-term trendline starting from  the low of July and is now trending below the same trendline. Currently, the index is hovering around the 21-DMA  and still trading 1.40% and 13% above 50- and 200-DMA, respectively. The momentum indicator, RSI, now start ed trending below the key level with a negative bias, along with a negative crossover on MACD.
 
  • Further, as per the O’Neil Methodology of market direction, the current market is in a “Confirmed Uptrend” with  five distribution days in the last 25 trading sessions. 
 
Summary:
 
All the above-mentioned multi-timeframe technical parameters, along with the O’Neil Methodology of market direction,  indicate the index is in a strong bullish trend from a long-term perspective. However, from a short-to-mid-term perspective, the index may remain volatile and choppy. Currently, this benchmark index has strong support around  17,600–17,500 levels.  
Further, we expect the index to remain volatile and choppy in the range of 17,500–18,400 levels, and a sustained fall  below 17,600–17,500 levels may lead to more bearishness. In short, sustainable trading below 17,500 may lead this  benchmark index toward 16,800–16,500 levels, followed by 16,000–15,800 levels in the coming weeks and months. 
 
FII/ DII Activity for the Last Six Months 
 

 
Indian Sectoral Coverage (As on September 2, 2021) – As per O’Neil Methodology
 

 
Current Status of Major Global Indices – As per O’Neil Methodology 
 

 
TraderSmith performance chart  
 

 
Sectoral Analysis 
 
Nifty Bank – 39,115, up 4.52% last month  
 
 
This sectoral index outperformed and moved beyond our expectations and, as mentioned in our previous monthly  report, triggered profit-booking at a higher level. In the third week of the last month, it touched a new all-time high at  41,830. Despite profit booking at a higher level, the index gained around 4.52% in October and formed a bullish candle  with upper shadow and a higher-high higher-low price structure on the monthly chart. 
 
  • On the weekly chart, this index slowly and steadily gained its momentum until the third week of October. Howev er, profit-booking at a higher level weighed on this index in the last week of October, and it fell around 3% in the  same week. As a result, it formed a “bearish engulfing” pattern on the weekly chart. 
 
  • The momentum indicator RSI on the monthly time frame chart has given a breakout above its consolidation zone  and is still trending in a bullish trajectory with an upward slope. But the slope of the weekly RSI turned downward.  Further, MACD is still trending with a positive crossover on both time frame charts. 
 
  • Apart from price momentum, the index is trending above all its key moving averages on all time frame charts. It is  currently placed around 5.50% and 13.42% above its 50- and 200-DMA, respectively.  
 
Summary: After considering and analyzing these factors, this major sectoral index has now started trending in a bullish  trend after eight months of consolidation. However, at the current juncture, fresh bull calls can only be taken above the  40,400 mark. As far as, from November month prospective, we expect this index to remain traded in the broad range of  37,000–42,000. 
 
 
Nifty IT – 34,408.75, down 1.77% last month  
 
 
This major sectoral index moved in line with our expectations as we mentioned in our report published in the month  October. We mentioned, “The multi-timeframe analysis indicates this index is likely to remain in the sideways zone with  negative bias.” The index corrected around 2% last month after a massive rally, which started in July 2020.  
 
  • This index has formed two consecutive “inverted hammer” candles on the monthly chart but is still trading with a  positive bias on higher time frame charts.  
 
  • Likewise, after hitting an all-time high of 37,823 on the weekly chart, the index formed a big bearish candle in the  last week of September, which has been an inflection point, and since then, the index has been volatile with negative bias. 
 
  • However, the index has already breached its 21-DMA on the daily chart and is now hovering around its 50-DMA. 
 
  • The momentum indicator RSI is still trending in a bullish trajectory, but it is trending downward on the weekly  chart, approaching 60–61 levels. The weekly RSI must hold above these levels to remain bullish. Historical analy sis of weekly RSI indicates a key level to watch for bullish or bearish trends from a mid-term perspective.  
 
Summary: Looking at the current juncture, the 50-DMA and 34,700–34,400 levels are the key levels to watch. We  expect sustainable trading below those levels may turn more volatile and may open a new downside window, leading  this index toward the 32,000 mark in downside. However, if it holds above the 50-DMA, it may remain trade in the  range of 34,000–37,000. 
 
 
Nifty Pharma – 13,879.35, down 4.06% last month 
 
 
In the first week of the last month, this index gave an upside breakout but failed to hold above breakout levels and  turned volatile, as we had mentioned in our previous monthly report. After a breakout failure, it has corrected around 4%  last month and formed a bearish candle.  
 
  • The index is trading sideways from June 2021 onward, and still, there is an absence of bullish momentum, which  is clearly visible on the weekly and monthly charts.  
 
  • Further, on the weekly chart, this index shows some price momentum divergence structure, and due to this, the  index is trading in a sideways zone with negative bias. 
 
  • Likewise, this index is now trending below its 50-DMA on the daily chart, and there is a negative crossover on the  21- and 50-DMA. Later, it tested its 200-DMA and took support around 200-DMA.  
 
  • The momentum indicator RSI is now trending downward on monthly and weekly charts, and it shows more nega tivity on weekly charts. Another trend following indicator, MACD, is also trending downward with a negative  crossover on the weekly chart. 
 
Summary: After considering the above factors, the 200-DMA is a key level to watch in the coming days as a breaching  and sustainable trade below the 200-DMA may open a new downside window in the coming weeks. However, holding  above the 200-DMA may show some positive strength. 
 
We expect this index to remain volatile and choppy with a negative bias, and a breach below the 200-DMA may lead  this index towards 13,000–12,800, followed by the 12,000 mark in the coming few weeks. 
 
 
Nifty FMCG – 38,222.10, down 5.45% last month 
 
 
In the last monthly report, we mentioned that “the index may remain volatile while trading in a sideways zone. Further,  a fresh bull call can be initiated once the index crosses and holds above 41,000–41,200.” This index broke out above  the level we mentioned in the previous monthly report but failed to hold above breakout levels. Afterward, it took the  worst hit of the correction phase among all the sectors and lost around 5.45% last month. It has formed a bearish candle  with an upper shadow on the monthly chart.  
 
  • The index traded with a positive bias until the first half of October but started falling in the second half of the month. It has formed a “double-top” price structure on weekly and daily charts.  
 
  • The index corrected around 10% from its recent all-time high of 42,021 and retested its 100-DMA. And it is currently hovering around that level. 
 
  • The slope of weekly and monthly RSI has now turned negative, and it has breached the upward sloping trendline starting from the low of March 2020 on the weekly RSI chart. Further, weekly MACD is trending with a negative  crossover. 
 
Summary: Analysis of the above technical factors suggest negative bias in this sectoral index. And this index may turn  more negative in the coming weeks once it breaches below 38,000 levels. We expect sustainable trading below 38,000  to lead this index toward its 200-DMA, i.e., 36,000 mark. 
 
 
Nifty Realty – 498.70, down (-2.94%) last month  
 
 
This sectoral index exactly moved as expected in our previous monthly reports and special sectoral reports on the realty  index. This index has achieved our previously given target of 550 and is trending with a bullish bias. However, this index  has witnessed profit booking at higher levels and formed a bearish candle with a long upper shadow on the monthly  chart. 
 
  • Last month, after touching 550 level, this index showed some erratic moves and traded in a volatile manner. It fell  to 490 level as mentioned in the previous monthly report and took support around that level. However, its overall  structure is bullish on the monthly price chart. 
 
  • This index has outperformed the overall market and may remain in bullish territory as the relative strength chart  analysis suggests a long-term bullish trend in this space. 
 
  • Technical indicators like RSI and MACD show a positive trend on the higher time frame charts, i.e. weekly and  monthly charts. 
 
Summary: This sectoral index is in a secular bullish trend, and we advise following the buy-on-dip strategy in this  particular space. We expect the outperformance of this sector to remain in continuation, and it may gain further from  the current level. 
 
Our bias would remain positive in this space, and we expect sustainable trading above the 550 level to lead this index  toward the 700 mark in the coming few weeks and month(s). However, on the flip side, a failure to cross and hold above  550 may turn the index volatile and choppy. 
 
 
Nifty Metal – 5,563, down 0.85% last month 
 
 
In our previous monthly report, published on October 5, we had mentioned that “a fresh bull call can only be taken once  the index crosses and holds above the 5,900–6,000 mark. However, failure to cross these levels may turn volatile in the  range of 5,000–6,000.” As expected, the Metal index crossed above 5,900–6,000 levels, but it failed to hold above that  level and once again went into the sideways zone.  
 
  • The index has formed a “gravestone doji” with a long upper shadow on the monthly chart, indicating sharp profit  booking from the highs.  
 
  • Further, it gave a breakout above 5,900 level on the weekly chart in the second week of October, but in the follow ing week, i.e., in the third week of October, it made a high of 6,300 and witnessed a profit booking at higher level.  As a result, it made a “bearish engulfing” candle and went into a consolidation with negative bias. •
The momentum indicator 14-period RSI is still trending in a bullish trajectory, with a positive MACD on the month ly chart. However, weekly RSI indicates divergence and is now trending in a negative slope with lower peak and  lower trough formation on the weekly chart, with a negative MACD crossover. 
 
 
  • Apart from the above, it is still managing to hold above its 50-DMA, but sentiment suggests it may breach the  50-DMA in the coming days. Currently, this index is placed near the 50-DMA and 18% above its 200-DMA. 
 
Summary: The multi-timeframe analysis indicates this index is likely to remain in the sideways zone, in the range of  5,900–5,000 with a negative bias. Further, it may turn positive if it manages to cross and hold above 5900- 6000 levels.  
 
 
Nifty Auto – 11,297.45 Up 6.60% last month 
 
 
This sectoral index exactly moved in line with our expectations as mentioned in our previous monthly report and special  sectoral report published in the first week of October. The index touched our expected level of the 12,000 mark. The  index gained around 6.60% in October and formed a bullish candle with a higher-high higher-low price formation on  the monthly chart. 
 
  • After breaking out from a “Symmetrical Triangle” pattern on the weekly and daily charts in the first week of Octo ber, the auto sector quickly gained around 11%. It touched its previous all-time high of around 12,000 levels.  • 
After retesting the previous all-time high of around 12,000, it has retraced almost 1,000 points from the highs but  is still trading above the breakout level. 
 
  • Simultaneously, the momentum indicator RSI is in a bullish trajectory on monthly and weekly time frame charts,  along with a positive MACD crossover. 
 
  • The index is trending above all its key moving averages on all time frame charts. It is currently placed 7.3% and  10% above its 50- and 200-DMA, respectively. 
 
Summary: This sectoral index is in a bullish trend, and we advise following the buy-on-dip strategy in this particular  space. We expect this sector’s outperformance to continue, and sustainable trading above 12,000–12,100 levels may  open a new upside window toward the 15,000 mark in the coming months. However, a failure to cross and hold above  the 12,000–12,100 mark may see the index remain volatile in the range of 10,600–12,000 levels. 
 
 
Nifty Energy – 23,236, up 1.65% last month  
 
 
This sectoral index moved almost in line with our expectations mentioned in our previous monthly report and traded in  the range of 22,760–25,300. We had stated that “we expect it would gradually move up from the current levels toward  25,000–26,000. However, some profit-booking cannot be denied at higher levels as it has gained consecutively in the  last six weeks.” It tested a new all-time high, but profit booking at the higher level resulted in “Inverted Hammer” like  candlestick pattern formation on the monthly chart. 
 
  • On the monthly chart, this energy index has formed an “inverted hammer” candle with a higher-high and high er-low price structure. On the weekly chart, due to profit booking at a higher level formed a “bearish piercing line”  candlestick followed by another bearish candle formation in the last week of October. 
 
  • The momentum indicator RSI on the monthly time frame chart is still trending in a bullish trajectory in upward  slope, but the slope of weekly RSI now turned downward. Further, MACD is still trending with a positive crossover  on both time frame charts. 
 
  • Apart from price and momentum, this index is trending above all its key moving averages on all time frame charts.  It is currently placed 5.5% and 19.7% above its 50- and 200-DMA, respectively. 
 
Summary: The index is still trading in a bullish zone on higher time frame charts, i.e., weekly and monthly charts so far.  However, it is now trading below the 21-DMA after ‘’bearish engulfing’’ candle formation on the daily chart. Hence, we  expect this sectoral index to trade sideways in the coming weeks and retest its 50-DMA, currently placed around the  22,500 mark. 
Looking at the multi-timeframe charts, we expect this index may remain volatile while trading in a sideways zone. 
 
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