Nifty hovering in consolidation mode

Nifty has registered the first distribution day. With this, the index clearly shows tiredness in the trend, as it formed a series of bearish, indecisive candles

What Charts Say?

• Nifty made 3 new all-time highs in 4 trading sessions
• In last 10 days, Nifty closed below opening level
• Volatility up by just 2.79%
• On Friday, 95% of sector indices closed in red

Last week, the equity benchmark indices traded in a narrow range. In a truncated four-session week, NSE Nifty gained just 35.50 points or 0.15 per cent. BSE Sensex was also up by 0.28 per cent. broader Nifty Midcap and Smallcap indices advanced by 0.37 per cent and 1.06 per cent, respectively. FinNifty was up by 2.59 per cent, and Bank Nifty gained by 1.52 per cent. Auto and FMCG were the top losers with 2.45 per cent and 2.16 per cent, respectively. The market breadth is mostly positive. The FIIs bought Rs9,102.87 crore, and the DIIs bought Rs9,574.93 crore worth of equities last week.

The Nifty is in consolidation mode for the second consecutive week, trading in a narrow range. This phenomenon is common after a massive move during the election results week. The index is making new highs without any confident move. Last week, it made three new all-time highs in four trading sessions. The interesting fact is that for the last ten days, the Nifty has been closing below the opening level. In a narrow-range week, the volatility has also not changed much. It is up by just 2.79 per cent.

The Nifty has formed a spinning top with a higher volume than the prior week. On a daily chart, it formed a bearish engulfing candle with high volume in the last ten days. Nifty has registered the first distribution day. With this, the index clearly shows tiredness in the trend, as it formed a series of bearish, indecisive candles. Importantly, on Friday, 95 per cent of the sector indices were closed negative and the market breadth is negative.

Nifty tested the 8EMA support on Friday after two weeks. The MACD is showing a clear sign of waning momentum. The RSI has been flat for the last two weeks. The ADX line is declining, and the +DMI and -DMI are also declining. These are the indications of exhaustion. On an hourly chart, the RSI almost got the confirmation for its bearish divergence. The MACD line is near the zero line, and the hourly bar is just moving the average ribbon’s lower line.

The last four days of the price pattern are a box range and trying to move higher. A lot of indecisiveness is a major discomfort and a lack of confidence to take long positions aggressively. As stated earlier, the upside target is 23,770pts, which is very limited. In these conditions, it is better not to chase the upside moves. A decisive, strong bullish bar above Friday’s high of 23,667 with higher volume will give the confidence to take the bullish bets. In any case, a close below 23,411 will be negative, and the index can test 20DMA of 23,061 within a short period, which can be treated as a mean reversion. Below 20DMA, the 50DMA support is at 22,644 points. As the upside is limited, it is better to protect the profits on the table with strict stop losses. The stock-specific activity will continue. As the monthly expiry is scheduled, we see a spike in the volatility. At the same time, the General Budget is just a month away, and the market is keenly watching developments and consultations. There may be sector rotation, and watch the money flow. Focus on the PSEs and PSU banks, as well as the Infra and Pharma sectors. The IT sector is showing an improved relative strength.

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