ECONOMY

Nifty This Week: Technical Charts And More – Finding Trends Beyond The Daily Charts

We closed a shortened week where the four sessions were all small-range affairs with small body candles on the daily charts. To try and find some sense in that, or evidence within that limited movement is unwise.

So is there something else that we can look at? Well, let’s read some charts and figures of another kind. I came across a few articles during the week which offered food for thought. One of them was a report on the segmentation of market volume. The trend was not a surprise, but the quantum was. The volumes in the Options segments are currently dwarfing the volumes seen in the cash and futures segments. What was even more notable was the extent of growth through the years of the options segments. Doubtless, a lot of the new money goes into the option segments. I truly don’t know how many people buy options (limiting their risks) but I would venture a fair amount that the bulk of them are shorting options. I would also wager another fair amount on whether anyone really knows anything about managing options trades that go wrong. Last week the index shorting probably made money for them, if they held it through the week. But with the extra volatility (in a small range) that we witnessed, it would require a more professional approach to hold positions through gyrations.

One of the problems is that much of the new crowd looks at YouTubers to give them (free) education on options. People who make those videos are professionals and they almost always have some agenda of their own. Nothing is free, after all. So, they listen to these professionals telling them how they can laugh all the way to the bank by shorting options and get all excited to do it. But listening to someone on YouTube and trying to do it in real-time are two completely different things, which many people find out to their dismay much later. But this problem doesn’t seem to stop the new crowd because everyone thinks he is smart, at least smarter than the next guy.

I fear this aspect is not going to change. People will do this till they go broke. Then they switch to something else. My only suggestion is that there is money to be made in options—both buying it and selling it—but it is better done after some learning.

The second article was a report on Covid-19, vaccination, new cases, deaths, etc. The facts of the matter are clearly shown by the following chart.

One glance at this chart and we can reassure ourselves that we are probably winning the battle against Covid-19. Markets are, in all likelihood, reflecting this reality more than anything else. The confidence is returning the projections of growth are getting better; the GST collections are consistent and high etc. etc. So the strength in the trends is not surprising.

Moving on, here is something that not many of us know, even I didn’t until I saw this picture. It is a table of the market cap division of the NSE.

Most of us perhaps don’t realise that we are either in the 8% bracket of the market cap coverage or even more probably in the 2.6% zone. We keep looking at the Nifty and wonder why our portfolios are not moving similarly. The reason why most of us were happy in the lead-up to the last couple of weeks, is that the Nifty Microcap 250 has outperformed the Smallcap 100 over the short as well as long term. People do love those zippy microcaps and now they have their own index to benchmark it to. I would certainly want to keep a watch on the members of the Nifty Microcap 250 because they seem to be delivering decently, basis the document put out by the NSE on this new index.

Another interesting article was on multi-baggers. Everyone hunkers after multi-baggers all the time. No one quite thinks about the time it takes for a stock to become a multi-bagger. Recent research reveals that it takes more than 10 years for a stock to achieve that distinction. I know that many people may not believe me because recent experiences with stocks like DMart and Dixon and few others like those have been quite different. But the research was looking at data from nearly 20 years and that was what it found. So, the question here is, who is holding stocks for 10 years and more? Of course, many guys pay lip service to holding for the long-term but the facts are actually otherwise. The same research also reported, now get this, that the average holding period of a retail investor is less than two years. What does that tell you? That no one is really playing for multi-baggers. Only a few committed people do. The rest are just hoping for the best.

At least it is not going to lead you down the wrong path of illusions. That research on holding periods was good information, I tell you. In this context, there is a nice quote that goes, “big things start small but not every small thing can become big”. If something that you are on to starts behaving like it wants to grow bigger, then it is your responsibility to develop the kind of mindset that will allow it to grow bigger and convert into a multi-bagger.

Getting back to markets, no changes in the outlook. Continue to be a buyer on dips to around the 17,000-17,200 area. Look for new highs once 17,450 is taken out. If neither happens, then it’s just going to range and that would not be worth participating in.

CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise, and NeoTrader; and chief investment officer of Plus Delta Portfolios.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.

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