Technically Speaking == Jan 2022

The monthly chart for Jan 2022 is ready for review. Our instrument eliminates noise, delivers a clear picture of what has happened and presents a fair image of what to expect shortly.

Nifty 50 opened and closed at 17387.15 and 17339.85 respectively, making a move of -0.27%

Let us look at some technical indicators and mine the hidden ideas.

We will cover five areas and attempt to place them either in a Bull or Bear Territory:

1.             Index movement

2.             Market Breadth Report

3.             Volatility Index

4.             Inflation

5.             FII Activity

Let’s Start with a Short Story:

I recently completed the book, The Disciplined Trader - Mark Douglas

I acquired some priceless lessons, sharing one of them with you:

Attention to profit is a sign of immaturity, while attention to loss is a sign of experience.

The market doesn't offer wealth to those who do not focus on Risk Management.

Focus on protecting what you have; the market will provide multiple opportunities to make more.

Index Movement-

Nifty reached a high of 18,351. Close to the all-time high of 18,604; however, the Bears got triggered and pushed the Bulls down by 8.25% (16,836). Fortunately, the Bulls managed to fight back. 3.40% of the lost ground was recaptured, and the index ended at 17340.

If we look at the last candle in the below chart, we will notice two events.

1.     Nifty did not break the low of the previous month, but managed to knock off the last months high (this is called creating a Higher High, considered bullish)

2.    17000 level was breached. However, the team of bulls rigorously drove the bears back. They defended well and grabbed the 17000 level. The battle was incredible.

Now, looking at the below image of MACD for Nifty, the blue line is above the red line, this indicates that the Bulls still have strength, and they will make all possible attempts to hold the fort.

The defence around 17000 was quite strong and impressive. The MACD continues to Favour the bulls. The bears made a great attempt; however, the Bulls managed the situation well.

We will give this point to the Bulls.

  

Market Breadth Report:

The Market Breadth will be the first to detect any major correction or Crash.

There can never be a crash until most of the shares are moving down; similarly, there will be no Bull run until the majority of the stocks are moving up.

The Advance decline ratio for Jan 2022 is 1.14 (Source: BSE India). A Ratio of greater than one is considered good.

The blue region in the above charts indicates advance the orange bars indicate a decline. We can witness tension in the blue region from 17th to 25th Jan. However, bulls pushed them with great vigour.

This is a good sign, and we will give this point to the Bulls.  

 

Volatility Index (S&P 500 VIX):

The VIX is considered a key indicator in the technical universe. It captures the fear in the world of investment. The VIX has an inverse relation with the market; VIX moves up, the market moves down and vice versa. 

VIX closed at 16.34; this level is below its average. In Jan, VIX reached 38.94 and Bears held the command; fortunately, VIX settled down and closed below 18. The Bulls took the control back.

In Jan 2022, VIX moved with high velocity. This indicator below 18 is a bullish sign; We must give this points to the Bulls. 

 

US Inflation Data: (Dec 21)

If inflation does not settle down sooner than later, it will unsettle the market. FED will have no choice but to take a stance and reduce the liquidity.

Below, we have shared the chart for the entire available history. The annual inflation rate in the US accelerated to 7% in the last month of 2021, a fresh high since June of 1982. The energy sector; was a large contributor. The rise was smaller than in November (29.3% vs 33.3%), with gasoline prices surging 49.6% vs 58.1%.

In the above charts, we have zoomed in data from Sep 21. The rates soared to 7% in Dec, which means inflation is currently at a 39 year high.

The rise is a big reason to worry, we must give this point to the Bears. 

FII Activity:

Since April 2021, FII’s are majorly liquidating their position. The last few months data are alarming. 

This data might be a prophecy. If we don’t focus, the markets can punch between the eyes and knock the wind out of us.

The Bears are the rightful owners of this point. 

Point to note: The selling has been quite steep however, FII’s must park this money eventually. While planning the next strategy, future FII data should be applied.

Summary:

1.       The index witnessed an intensely fought battles between the Bulls and Bears.
2.        Market Breadth is positive, with the advance-decline ratio at 1.14 
3.     VIX closed below 18, indicating a Bullish sign. 
4.      If inflation doesn’t settle, it will eventually damage the sentiments.
5.      FII’s have been consistently liquidating their position since April 21. The quantum of current selling is intimidating.

Please Note:

• We are attempting to write this report in simple language. The idea is to highlight the data points in understandable language.
• If you find it valuable or see an area of improvement, feel free to share your thoughts.
• Taking feedback is the only way to improve the quality of the work.

Thank you for reading this report, wishing you and your loved ones a great week ahead!

About the Author:

Mr Manish Mathew is the author of this article. He is the Founder CEO of Intelligent Investors. Here is a brief note about the writer:

Manish is a professional Investor with more than a decade of experience in Wealth Management, Risk Management, Long term Investment, Family Office, Private Equity and Creating Wealth.

LinkedIn Profile: https://www.linkedin.com/in/manish-mathew-03296a104/