16410 crucial support for this week

With the global equity markets recovering in the absence of big institutional participation, the domestic equity benchmarks have recouped the initial losses. On a much anticipated volatile week, the frontline index, Nifty, closed with just 18.55 points gain and settled at 17003.75. The index oscillated in 745 points range. The BSE Sensex also gained just 0.2 per cent. The broader market indices Nifty Midcap-100 index declined by 1.1 per cent, and the Smallcap-100 index closed flat. The Nifty IT is the strong performer with a 2.9 per cent gain, and the Pharma index is also up by 1.9 per cent. The FMCG index is up by 1.3 per cent. The Bank Nifty and Fin Nifty were closed 2.1 - 3.2 per cent lower. As the holiday season and year-end holidays, the institutional participation was lower.

During the current month, FIIs sold Rs 33.276.49 crores, and DIIs bought Rs.26,957.50 crore worth of equities.

The Nifty has formed a Hammer candle on a weekly chart after taking support at the lower Bollinger band and the 40 weekly average. The Hammer candle is not a classical hammer as it has a long upper shadow too. Anyway, we can call it a Hammer for a bullish view. The Nifty snapped the two weeks up to and two weeks down pattern, as it closed marginally higher. For the first time after the third week of April, the Nifty declined below the 30-week average and finally managed to close above the moving average. The frontline index started the week with a sizeable gap down and breached the major intermediate support. With this sharp decline, it met the Head and Shoulder pattern target.

On Monday, it broke down the bearish flag pattern and at the end of the week, it retested the breakdown point and collapsed again. The Nifty has corrected 11.79 per cent from its lifetime high, entered the Category-I corrections. This is the highest correction since March 2020. Earlier, in Feb-April, it corrected 8.3 per cent. The prior correction retraced only 23.6 per cent of the preceding uptrend. But, this time, it has retraced precisely 50 per cent from the previous trend. The weekly ATR shows the price has increased to 539 points, almost equal to the Feb-April level. But the daily price ranges are higher by 265-285 points. This indicates that the uptrend since March 2020 low is matured and into a corrective phase. The Nifty has formed a Hammer candle on a weekly chart, showing fall may halt for now. But, the indicators show a different view. For the first time after March 2021, the negative directional momentum indicator -DMI crossover, the +DMI is negative for the market direction. The ADX shows the strength of the uptrend. There are no positive divergences. MACD histogram shows that the bearish momentum has increased. The Nifty is moving in a downward channel and formed three lower tops and three lower bottoms. The declines are sharper and consumed lesser time than the advancing moves. Any upside move must cross the prior swing high to reverse the trend. Unless the Nifty crosses 17640, we can assume the trend is on the downside. And last week's low of 16410 will be crucial support for next week. With the absence of institutions, the market mostly may consolidate between a larger range of 16410-17376. This over 1000 points range looks like a more extensive range, but, Only a move above 17170 will increase the volatility and daily ATR. A close below, the 16880 will resume a fresh down move. Within this zone, there will be profit booking at every higher level.

As we are expecting consolidation in the range, is wise to be neutral on the overall market direction. The relative rotation graphs (RRG) analysis shows Nifty IT, Pharma, and Metals may show an out-performance compared to the broader market. The BFSI sector stocks will continue their underperformance. The auto sector lost its upside momentum. It is better to have modest purchases in the stronger sector stocks next week.

(The author is financial journalist,

technical analyst, family fund manager)