ADX, other indicators showing no strength in trend

The domestic equity market traded in volatility and recouped most of the intraweek losses. The NSE Nifty closed at 15,856.05 points with just a 67.35 points or 0.42 per cent loss. The BSE Sensex declined 0.3 per cent. The broader markets also declined in line with benchmark indices. The Midcap-100 and Smallcap-100 indices fell by 0.9 per cent and 0.4 per cent respectively. On the sectoral front, Nifty IT index is up by 1.7 per cent. The Realty and FMCG indices advanced by 0.9 per cent and 0.8 per cent respectively. The Media, Auto, and Bank Nifty declined in the range of 2-2.6 per cent. The overall market breadth is negative as the declines are outnumbered during the week. FIIs sold Rs.12,368.18 crore, and DIIs bought Rs.10,187.60 crores during the current month. The India VIX is flat at 11.76.

The Nifty oscillated around the 20DMA during the week. It began the week with a gap down and tested the consolidation area support on Wednesday. The bears failed to close below the consolidation support decisively. The Bulls took advantage of the last recovery on Wednesday and bounced back to above the 20DMA. During the last four trading sessions, the Nifty began the week with a Doji candle and ended with another Doji candle. As the Nifty hovering around the 20DMA in the consolidation zone and failing breakout on either side, the prolonged sideways action is not giving any decisive trend indications. The interesting observation is that the daily price ranges have increased during the week. After taking support at the 50DMA, the Nifty reached to less than a percentage away from the previous high.

On a weekly basis, it formed a lower low candle. The RSI faced resistance at the sloping trend line for the third time. The negative divergence is present at weekly and daily time frames. There is negative divergence even in the positive directional indicator +DMI. The Daily ADX is at 9.44, is showing there is no strength in the trend. As consolidation in a tight continues, none of the indicators showing any significant strength in the current market condition.

The consolidation between 15,915-15,630 points with an upside breakout target of 16,300 points. But, if it breaks on the downside, the immediate support is 15,431 points. Below we will get clear trend reversal signals. The index is made swings highs at 15869-870-893-952, and these higher swings showing indicate an uptrend within the consolidation zone. But, at the same time, the index failed to form higher lows. In fact, the recent swing low is the lowest one. This divergence is also not giving any clues. We need to wait for a decisive breakout.

On the other side, the VIX ended flat after a sharp spike to above 14 levels. This spike and rising daily ranges are the first sign that the market may see further volatility expansion with increased price action. An upside breakout with high volatility will lead the Nifty toward 16,180 points. But any downside move will test the 15,630 level area of support. In this scenario, the strategy is simple. Build the long positions above the 15,915 points and short positions below 15,630 build the short position. Within the range, apply neutral strategies. Stay positive on the portfolio as long as it holds 50DMA (15612).

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

manager)