Market correction likely in near future

Dalal Street continued its winning streak for the third consecutive week with the help of broader market and PSU banks. The decline in Covid cases, neutral RBI policy and encouraging US no-farm payroll data are the positive outcomes last week. Nifty scaled record high. It gained by 234.6 points or 1.52 per cent. BSE Sensex closed 1.3 per cent higher. The broader indices Nifty Midcap-100 up by 3.3 per cent and Smallcap-100 index advanced by 2.4 per cent. Barring Nifty IT index, which is down by 0.5 per cent, all other sectoral indices performed well. The Realty index advanced by 6.7 per cent, Metal up by 5.6 per cent. FIIs bought Rs 3049.81 crore, and the DIIs sold Rs 981.73 crore worth of equities.

Nifty has formed another bull candle above the previous pivot on the weekly chart. As the benchmark index is placed in uncharted territory, there is no visible resistance. It has traded in 359 points range during the last week and closed with 235 points net gain. The Nifty gained over 990 points in the last three weeks. As expected, the cup breakout made the strong moves. The handle formation may not be a possible one now, as the price structures suggest. Nifty may touch 15,968 in the short term. Now the support levels pushed up to 15464 and 15297. Only below these levels, the corrective consolidations will be of longer duration. Touching the 15297 means a retest of cup breakout. The entire current upswing from May 17, taking support at 5EMA, is currently placed at 15596. This level is very critical for Monday, for a beginning of a correction. A close below this level means the Nifty is going test the 15464 initially. The histogram shows that the momentum is declining for the last five days, though the index is moving higher. The positive directional indicator +DMI is also flattened last week. At the same time, the identical hanging man candles on the daily chart, indicating exhaustion of bullish strength. These are not bearish signs. With smaller corrections of two to three days, market may move higher toward 15,968. Before this, the Nifty may experience a subdued trajectory around 15750 and 15820 levels.

The weekly RSI is at 67.99, entering into an overbought zone. The MACD is about to give a buy signal. The histogram may turn greener next week. There are no negative divergences on the longer-term charts. Still, there are concerns, which the market is ignoring. The VIX fell below 15 levels during the last week. The inverse relationship with the index will have an impulse impact in the near future. Historically, lower VIX will result in a high volatile move. I have suspicions that a down move that will have sharply one or two declines is possible in near future. I suggest maintaining strict risk management practices to safeguard the profits and capital.

(The author is financial journalist, technical analyst, family fund manager)