Technically Speaking == Feb 2022!

 The most important tool from the technical world is ready for review, let’s have a look and learn from the monthly chart for Feb 2022. This 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 17,529 and 16,794 respectively, making a move of -4.19%

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 Breath Report

3.             Volatility Index

4.             Inflation

5.             FII Activity

Let’s Start with a Short Story:

THE WISE MAN

People have been coming to the wise man, complaining about the same problems every time. One day he told them a joke, and everyone roared in laughter.

After a couple of minutes, he told them the same joke and only a few of them smiled.

When he told the same joke for the third time no one laughed anymore.

The wise man smiled and said: “You can’t laugh at the same joke over and over. So why are you always crying about the same problem?”

Moral of the story:

Worrying won’t solve your problems, it’ll just waste your time and energy.

Index Movement-

Nifty reached a high of 17,995 and at this level, the Bears got triggered and pushed the Bulls down by 9.95% (16,203). Fortunately, the Bulls managed to fight back. The defence by the Bulls managed to recapture 3.65% of the lost ground, and the index ended at 16,794.

I must highlight this was the strongest display of strength by the Bears since the Covid and they got this power predominantly because of the Russian assistance.

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

1.     Nifty not only broke the low of the previous month but also closed below the same. (This is called creating a Lower Low, considered Bearish)

16,500 level was breached. However, the team of bulls rigorously drove the bears back. They defended well and managed to take back the 16,500 level. The battle was very intensive and kept the global investors at the edge of their seats.

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 strength of the bears was intimidating; however, the defence and push from the Bulls were worth the watch. 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 Breath Report:

The Market Breath 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 Feb 2022 is 0.83 (Source: BSE India). A ratio less than one is considered Bearish.

The blue region in the above charts indicates advance the orange bars indicate a decline. We can witness Orange Bar dominating the blue region for almost the entire month.

This point belongs to the Bears. 

 

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 19.93 In Feb, VIX reached 37.79 and Bears held the command; fortunately, VIX settled down but closed above 18. The Bulls took the control back. 

In Feb 2022, VIX moved with high velocity. This indicator above 18 doesn’t give a clear sign We must place this point in Neutral Zone.

US Inflation Data: (Jan 22)

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 7.5% the highest since February of 1982 and well above market forecasts of 7.3%, as soaring energy costs, labour shortages, and supply disruptions coupled with strong demand weigh. Energy remained the biggest contributor (27% vs 29.3% in December)

In the above charts, we have zoomed in data from Nov 21. The rates soared to 7.5% in Jan, which means inflation is currently at the highest point since 1982.

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

FII Activity:

FII’s are majorly liquidating their position for a long time; however, the last few months data are alarming.

This data might be a prophecy.

The Bears are the rightful owners of this point. 

Summary:

·       The index witnessed an intensely fought battle between the Bulls and Bears.

·       Market Breadth was negative, with the advance-decline ratio below 1.

·       VIX closed above 18, hence placed in a Neutral Zone.

·       If inflation doesn’t settle, it will eventually damage the sentiments.

·       FII’s continue liquidating their position. 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: Manish Mathew