24,073-24,670 Zone Crucial This Week

If the correction does not stop at 10-13% of Category-1, the market may enter into the Category-2 correction. This means the Nifty may test below the 4th Janlow of 21281, which is almost a 20% correction from the top

During the last five trading sessions, including Muhurat Trading, the Nifty mostly consolidated within the range. It traded in the 363-point range and closed with a 0.51 per cent gain. Without the token trade on Friday, the Nifty gained only 0.10 per cent, and the BSE Sensex closed flat to negative with a 0.02 per cent decline. The broader market indices, Nifty Midcap-100, is up by 1.51 per cent, and the Smallcap-100 is advanced by 4.23 per cent. On the sectoral front, the PSU Bank index is up by 7.03 per cent, and Media gained by 6.58 per cent. The Nifty IT declined by 3.88 per cent, and the Auto index is down by 1.20 per cent. The market breadth is negative. The India VIX is up by 8.68 per cent to 15.90. The FIIs sold Rs.1,14,445.89 crore worth of equities in October, the highest monthly sale in history. The DIIs also bought at the record level of Rs.1,07,254.68 crore.

The benchmark index, Nifty, ended its four-week impulsive decline. Though it closed positive, the undertone is negative. In fact, October month has registered the sharpest fall after March 2020. It closed negative after 11 higher highs on the monthly chart. It formed a lower high and lower low, indicating that the 26277 is the major top. The Nifty sustained below the 20-weekly average and almost at the 30-week average, which at 24041 will act as immediate support for the Nifty. In any case, the index violated this support, expect more weakness, and can test the 200EMA at 23497. Earlier, this long-term average acted as support, and significant lows formed around this average. We are expecting a Categoryo-1 (10-13 per cent) correction, which is due for a long time. The 200EMA is almost equivalent to the 10 per cent correction from its recent high.

The Nifty has already corrected by 8.39 per cent from its top. It met the 61.8 per cent retracement target of head and shoulders pattern breakdown. The pattern target is at 23651. Around this level, there is another neckline for a bigger pattern of head and shoulders. If the correction does not stop at 10-13 per cent of Category-1, the market may enter into the Category-2 correction. This means the Nifty may test below the 4th January low of 21281, which is almost a 20 per cent correction from the top.

To avoid the Category-2 correction, the Nifty must take support at 23651 and bounce above the right shoulder. In the short term, the Nifty may bounce towards 24669, which is 20DMA. It must continue the rally above this level and needs a sharp impulse rally towards 25175, with volume support, to negate the further bearish implications in the short term. This may not be possible as the broader market is still very weak. There is no sector in a position to lead the market now. Normally, post-October, the market is bullish. This time, the conditions are different.

The Nifty is 3.14 per cent below the 50DMA, and it is in the downtrend. The 8EMA has been acting as strong resistance since the beginning of the downtrend. To clear this resistance, the index must close above the 24384 with a strong volume. The RSI sustained below 40. For an upside, the RSI must shift its daily range above 60. The weekly Bollinger bands began to contract. The -DMI is much above the +DMI and is also negative. The MACD is bearish but shows a declining strong bearish momentum.

In any case, the Nifty closes below 24073, expect it can test the 23651 in a faster manner and meet the category-1 correction target. For next week, the 24073-24670 zone is crucial. Either side breakout will result in a directional bias. The technical pullbacks or bounces are temporary, and they are utilised as an opportunity to book profits in the portfolio. The corrections may continue till the end of Q3FY25, and we expect a base breakout by the end of Q4FY. Stay very cautious and selective during this period.

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