High volatility likely in truncated week

A year after, the Indian benchmark indices reached an almost exact level. During the last Diwali, the domestic stock market experienced reversal signs with a bearish pattern. But on the same week in October, this Diwali, the equities showed an outperformance with global peers and near the yearly high. On October 19, NSE Nifty made a high of 18,604.45 points. At the end of October 2021, it closed at 17,671.65. We are almost there now, in the same month. During the last week, the Nifty advanced by 390.60 points or 2.27 per cent. BSE Sensex is also up by 2.4 per cent. The broader indices underperformed as Nifty Midcap-100 and Smallcap-100 are up by 0.6 per cent and 1.4 per cent, respectively. The Bank Nifty and FinNifty were the top gainers with 3.8 per cent and 2.8 per cent. The FMCG index also gained by 2.6 per cent. On the downside, Nifty Media and Metal indices are down by 0.3 per cent. The FIIs bought the equities in the last two days. But, this month, they sold Rs8,653.92 crore, and the DIIs bought Rs11,624.54 crore worth of equities.

The Nifty formed a strong bullish candle last week. It closed above the 10-week moving average and four weeks high and negated the last week inside the bar's bearish implications. It just closed above the 61.8 per cent retracement level of the prior down move. The 50-200DMA range was broken on the upside. This is a positive directional bias for the Market.

The Nifty closed at the sloping trendline drawn from October 2021 high. It also closed the daily channel resistance line. The Nifty has formed a long-legged candle on a daily chart and closed below the opening highs. As the index is trading above all key moving averages, there is no weakness in the charts. But, it has to close above the weekly trendline resistance for a strong bullish direction. A close above 17625 will test the previous parallel high of 18115. For a trend reversal, this level is very crucial. A close above, the 18115, means we have ended the year-long bearish phase and entering into the new bull market. As a festive and truncated week, a breakout may not be possible next week. But, overall, they are with a positive bias.

Last week's rally was supported by the global markets. During the last, the Dow index rallied by five per cent and broke out of the Double Bottom pattern. It also closed above the 38.2 per cent retracement level. The S&P 500 index also moved strongly higher above the weekly resistances. This broader global index took support at 20DMA, and the Bollinger bands indicate a possible impulsive move. With the positiveness presence in the global markets and the Naya Sauda mood in the domestic markets may push the sentiments higher.

The indicators have not developed negative divergences. The RSI is above 56-57 on daily and weekly charts. The MACD line is above the zero line, and the histogram shows an increased bullish momentum. It cleared the Anchored VWAP resistance. But the daily and weekly ADX is declining, which shows a lack of trend strength.

For the near term, the 17600-18115 zone will be a crucial zone. A close above 17600 decisively will have an immediate target of 17920. And a close above 18115 will form a new lifetime high and enters into the new bull market. On the downside, only below 50DMA (17499) short-term negative. Below this level, it may fill last Tuesday's gap and test 17328. For the current long positions, this will be a strict stop loss. As there are only three full trading sessions, the Volatility may increase. If the US markets show a stable move, our markets may also continue the positive bias.

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