17530-43 range to play as key resistance
The market participants are hesitant to take aggressive positions, as there is clear evidence of discomfort at higher levels. It is better to wait for a clear signal to take positions either way. Higher leveraged positions are not advisable now
image for illustrative purpose
The domestic equity market continued its positive move for the second week. The RBI's neutral monetary policy builds positive momentum after a sharp negative beginning on Omicron fears and a weaker global market. The benchmark index, Nifty, gained by 314.6 points or 1.83 per cent and settled at 17511.3. The BSE Sensex is also up by 1.9 per cent. The broader market indices Nifty Midcap-100 and Smallcap-100 indices outperformed by three per cent and 3.9 per cent, respectively.
Nifty Media index is the top gainer with 9.1 per cent, followed by PSU Bank index by 6.2 per cent. During a highly volatile week, all the sectoral indices closed with positive bias. The Market breadth is positive as advances outnumbered the declines. FIIs continued their selling spree as they sold relentlessly. They sold Rs16,235.19 worth of equities in this month. The DIIs bought 13,700.80 crore.
Technically, the NSE Nifty has formed a bullish weekly bar by closing above the previous week's high. It retraced above the 38.2 per cent of the prior down move. In an increased daily range and volatility, it oscillated 651.55 points range. The week began with a strong bearish candle, later recovered 3.7 per cent in just three days. The weekly price structure is very positive, but the daily chart contradicts the picture with two consecutive indecisive candles at the swing high. It formed a Dragonfly Doji on Thursday, followed by an inside bar and a hanging man. After a decline of nine per cent, we can consider this three per cent rally as a counter-trend as long as it is below the 61.8 per cent retracement level of 17908 points, which is also a downward channel's resistance line.
The index sustained above the 20DMA for the last two days. If the index is able to close above it, the moving average will also turn on the upside, which is a positive trend indication. It is also above the 20 weekly moving average of 17344. As long as the Nifty stays above, this weekly average will be a good sign for the market. The 50DMA placed at 17769 may act as the next resistance level, and it is in a downtrend. It reclaimed above to it on after declining below the 100 DMA for the second time this month. The index has oscillated around this average for the last 11 trading sessions. All the distribution days expired, and consecutively follow through days make the Nifty in a comfortable place.
On a 75-minute chart, the Nifty moved in a very tight range. It traded in Thursday's first two hours of range for 11 successive hours. The Triangle on the top and bearish candle at the resistance line shows that the 17530-43 range will play as a key resistance. An hourly close above this zone with an impulsive bar, the Nifty will test 17600. At this level, we need to watch the price behaviour.
Pattern wise, the Nifty met the 90 percent of the Head And Shoulders pattern target of 16700. Generally, after completing the pattern targets, the price enters into a counter-trend. This retracement should not exceed 61.8 per cent, otherwise. In any case, the Nifty retraces 17908, which 61.8 per cent retracement level, will reverse the intermediate downtrend into a decisive uptrend. The increased volatility in recent days is the inherent nature of the corrective phase.
During this phase, the bounces or counter-trends are used to sell opportunities by the institutions. That is exactly happening with FIIs. The other characteristics of these corrective counter-trends are, they consume more time than declines. The current counter-trend is already nine days old. Generally, these will be limited to not more than three weeks. As of the prior price, corrections were limited to two weeks. The next week's price action may unveil the new down move as it recovered two weeks.
The market participants are hesitant to take aggressive positions, as there is clear evidence of discomfort at higher levels. It is better to wait for a clear signal to take positions either way. Higher leveraged positions are not advisable now.
(The author is financial journalist, technical analyst, family fund manager)
