[Premium] Monthly Chart Trends & Perspectives

JC Parets
June 4, 2018

It’s very easy to get caught up in the day to day noise of the market, especially if you’re allowing toxic media content into your life. It’s virtually impossible for us to completely ignore it all, although I do try my best. So, at the very least, we want to be aware of what type of content we’re consuming and the conflicts of interest that are driving it. But another, and much easier way to avoid getting lost is simply by taking a step back. Monthly charts allow us to see the forest through the trees and is one of the most valuable parts of my entire process.

Even if you’re a day trader or short-term swing trader, I think it’s a huge advantage to understand the direction of the underlying trends. For me, who specifically looks out weeks and months, trying to make money this quarter, my monthly candlestick chart review is essential. I can’t begin to tell you how much this has helped me avoid blindly calling tops or bottom fishing in never ending downtrends. It most certainly helps us err in the direction of the underlying trends which, of course, increases our probabilities of success.

We'll start with the Nifty 50 which has been the strongest of the group as large caps continue to outperform their mid and small-cap counterparts. Prices hit our target near 11,165 in January and have been consolidating since. The uptrend remains intact, however, a neutral approach is best until we're above that level as a breach of support at 10,100 leaves prices vulnerable to further downside.


Click on the chart to enlarge view.

The Nifty Next 50 is stuck in the middle of our risk previous price target of 24,855 and our next target of 35,125. The uptrend remains intact, but below 28,200 a neutral approach is best as that leaves the index vulnerable to further downside.

The Nifty 100 uptrend remains intact, however, a neutral approach is best until this range of 11,220 and 10,460 resolves itself.

The Nifty Midcap 50 overshot our target near 5,100 late last year and have been consolidating around that level since. Below 5,100 a neutral approach is best.

The Nifty Midcap 100 is consolidating in a similar fashion, sitting back below our risk management level of 19,040. As long as prices are below that, the index looks vulnerable to further downside and so a neutral approach is best.

The Nifty Smallcap 100 index hit our price target earlier this year and has been trading lower since. As long as prices are below 8,550 a neutral approach is best as prices look vulnerable to further downside.

The Nifty 500 hit our price target near 9,440 late last year and has been consolidating since. As long as prices are below that level a neutral approach is best as a break below support at 8,820 would suggest further downside is ahead.

What's clear from our look at that many of the major indices have hit our upside price targets and have been consolidating since. A neutral approach is appropriate in most of these situations and the relative weakness in mid and small-caps is suggesting a lack of risk appetite in stocks. From here on out, we're going to need to be a lot more picky with our trade setups as there appears to be fewer good ones available. With that said, let's get into the sectors and see what the trends look like there.

The Nifty Financial Services sector is the largest component of the broader market and is also one of the strongest. Prices remain just off all-time highs and below our price target of 11,520. As long as prices are above 10,100 we want to be approaching this sector on the long side.

The Nifty Bank index hit our price target late last year and has been consolidating around it since. Above 25,500 we want to be approaching this sector on the long side, but below there a neutral approach is best.

The Nifty Private Bank index looks almost identical, so a bullish stance is appropriate above 14,650, but below that neutral is best.

The Nifty Commodity index has been correcting for most of this year. Our risk management level for longs remains 3,610 as below that prices are vulnerable to further downside.

The Nifty IT sector is another area of strength we've wanted to focus on for long opportunities. Prices continue to consolidate after a breakout in April. As long as the index remains above 12,880 we want to be buyers of weakness.

The Nifty Fast Moving Consumer Goods index remains one of the strongest sectors, sitting just off all-time highs. We want to continue to look at this sector for opportunities on the long-side, but from an index perspective we only want to be long above 29,000 for risk management purposes. Our price target remains 30,680.

The Nifty Auto index continues to consolidate above its 2016 highs of 10,545, so a bullish approach is appropriate if we're above that level. Below that, a neutral approach is best.

The Nifty Energy index met our price target and made new highs late last year, but has since broken back below 13,900 and confirmed a failed breakout. For risk management purposes a neutral approach is best until we're back above 14,080, at which point we want to be buyers.

The Nifty Infrastructure index confirmed a failed breakout above 3,440 and remains vulnerable to further downside at current levels, therefore a neutral or short approach is best until we get back above that level.

The Nifty Pharma index has been in a downtrend since late 2015 and has just recently met our downside price target of 8,000. At this point a neutral approach is best until we see how prices respond to this level.

The Nifty Metal index broke out to new all-time highs last September and has been consolidating since. We've seen prices retest the breakout area at 3,460 several times this year, so we only want to be long above that level as below it the index confirms a failed breakout and is vulnerable to further downside. Due to the weakness in the Infrastructure sector a breakdown seems like the higher probability outcome, but we'll have to wait and see.

The Nifty PSU index remains rangebound at best. Above former support/resistance near 2,570 a neutral/bullish approach is best with a target back toward the top end of this multi-year range.

The Nifty Realty index briefly made new all-time highs in January and quickly reversed. Prices continue to test former support/resistance near 291 and look vulnerable to further downside toward the next potential support level of 242.

The Nifty Media index has been trending higher since 2012 and broke above our previous price target near 3,155 in November. From a risk management perspective we only want to be long above this level as below it a failed breakout would be confirmed and further downside likely.

The Bottom Line: A lot of the major indices have hit our prices targets and are consolidating or sitting in between our risk management level and our next upside target. In this type of environment it truly is a stock pickers' market so we want to continue to focus on the themes that are working.

On the long side we want to stick with large-caps and the Financial Services, IT, and Consumer Goods sectors. The smaller sectors of the market continue to struggle as there does not appear to be any sector rotation supporting them. In fact, areas like Infrastructure, Realty, and Metals look vulnerable to further downside if they are below our risk management levels. Energy remains a wildcard as it had been a leader but is now back below our risk-management level and correcting through price.

If the current leaders start to falter, the major indices will be vulnerable as there is not a lot of support from the other areas of the market. Overall, the uptrends in the major indices remain intact, however, this corrective period would suggest focusing on individual sectors and components until these consolidations resolve themselves in either direction.

To view the charts above and the remainder of the new Monthly Chartbook, click here.

Allstarcharts Team

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