In investing, return is an uncontrollable element and, hence, there is no point in focusing on it. One should instead use all the energy and attention on the four elements that one can control: risks, cost, time and emotion.

That’s the thumb-rule CK Narayan, Founder at Chart Advise and one of Dalal Street’s most seasoned technical analysts, shared at the ETMarkets Investor Conference on Friday.

“Prices are the result of emotion. If you track prices, you will track emotion. Everything in the market happens through time; so you need to have a way of addressing the time element as well,” he said.

The other two elements, risk and cost, are dependent on how one interacts with the market, he said. “That’s the ultimate mantra to success in wealth creation,” he said.

Possible to foresee a market crash
Putting emphasis on using technical analysis all the time in order to avoid lean phases, Narayan said: “Those who know it can indeed time the market, and those who say it is not possible, do not know the art.”

The Dalal Street veteran said price of the day is the sum total of all the valuations, which are the reflection of fundamentals. “In essence, technical analysis (TA) is just a study of fundamentals. Because, fundamentals manifest themselves is the price. TA is nothing but the identification of trends, and examination of persistence, weakness and strength of that trend,” he said.

Talking about the sharp fall and recovery in benchmark indices in March-April, Narayan said the technical charts were indicating that something was majorly wrong much before the indices plunged. “Thus, the market crash was not very surprising.”

“Market is not famous for following logic every single time. The maxim in technical analysis is that the pattern will form first, and news will follow. That is what happened at the end of March, when the market started recovering after the sharp fall,” said the analyst, who has had four decades of experience on Dalal Street.

Indian equity benchmarks dived to multi-year lows as panic induced by the Covid-19 pandemic hit its peak. BSE flagship Sensex plunged to a low of 25,638 while NSE barometer Nifty dropped to 7,511. They have since recovered to trade at 34,000 and 9,800 levels, respectively.

Will Nifty retest 7,500?
Narayan says it would be quite difficult for Nifty to breach the March bottom. “A substantial price erosion took place within a short time in March. Nifty will go under a lot of consolidation and may test the 7,500 level again, but it will not be broken significantly. Similarly, it will also not rise in a significant way,” he said.

The market veteran highlighted the tendency of investors to think in linear fashion instead of the way the market behaves, which is usually erratic.

“Nifty returns over the years have been volatile. But we like to think it in a linear fashion, i.e., what I buy and what I hold will keep moving up. It means is that you have to handle these variations from time to time. For that, you need to look at market technicals all the time,” he said.


What awaits the bank stocks
Narayan attributed the massive plunge in bank stocks to aggressive trading by algo traders on the Bank Nifty counters. The index slashed half of its value from its highs to hit a multi-year low of 16,116.

“Bank Nifty is the most aggressively-traded counter, mostly through algos. So as implied volatility shot up in March, the algos got triggered, which inflicted heavy losses. Now, the counter has seen a huge downfall in volume as the machines have been turned off,” Narayan said.

Going forward, Bank Nifty is going to trade in a range, as volumes have come down in the absence of more stimulus from the government, he said.

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