Consolidation can go further

Equity markets have consolidated over the past week. NSE Nifty traded in the 390 point range before settling for 171.4 points or a loss of 1.06%. BSE Sensex fell 1.3 percent. Broader indexes had mixed performance, such as the Nifty Midcap-100 index down 1.3% and the Smallcap-100 index down 0.1%. On a sector basis, Nifty Pharma rose 2.3% and Realty 2.2%. The Nifty IT fell 6.3%. FII sold Rs 10,459.13 crore during this month. DII bought Rs7,367.04 crore.

National benchmarks consolidated after a previous momentum. As we said, the consolidation is in the small range. The Nifty has formed an indoor bar, closed below the opening level. It is also called Bearish Harami, which shows indecision with weight towards the bearish. Over five days, the Nifty hovered around the 50-day moving average, and eventually closed just above it. Still, the 50DMA is in a downtrend. The MACD line is also hovering around zero for the entire week. On a weekly basis, the trend has not changed. A notable development is that the RSI is shifted down and forms a small swing high. As previously reported, the weekly RSI has moved above the 48-50 area. Otherwise, the bulls might not have a grip on the market. The weekly chart suggests that the consolidation could extend for another week. Consolidation may go beyond the 16300-15800 area. This five hundred point zone is crucial for next week. A breakout on either side with a strong move can result in an impulsive trend. For a medium-term perspective, the Nifty broke through 16794 (which is the previous month’s high) to negate the market downtrend.

On a daily chart, the Nifty moves with a beat in the price action. Within the major downtrend, it has formed intermediate downtrend channels. Also in the middle channels, there are two countertrend channels. During the last countertrend consolidation, the index took support on the uptrend line and rebounded. It closed near the flag resistance. With the recovery in the late afternoon, the Nifty formed a green candle but failed to close above the previous day’s high. He filled in the two gaps from last week.

The VIX went down to 17.60, which could lead to further bullish moves. As the Nifty has closed near the resistance level, it may test the 16300 area as shown above. Here comes the question of how long it can last.

The Rupee weakened to a new high of 80.21, against the bullish projection of 81.50 – 82. It formed a rounding low pattern on the Dollar-Rupee chart. The Dollar Index hit a fresh 20-year high at 109.29, versus our upside projection of 120 based on the breakout of its 7-year range. These are fundamentally negative for equity markets and have inverse relationships. Even though the Nifty can bounce higher with various technical factors, it will be a Herculean task to sustain at higher levels.

The market lacks leading sectors and stocks. Only four sectors are in the upper quadrant and have started to lose momentum. Only 15 of the Nifty 50 stocks are in the main quadrant, four of which are losing momentum. The market needed a solid trend move with higher volume under these conditions. Otherwise, it can lead to bear dominance anytime from now. As global markets closed sharply, equities could open sharply. Wait for an hourly closing to make a decision. If the Nifty holds above the first hour high, we could have long opportunities. Otherwise, neutral bearish strategies will work.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)

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