Index may continue with small pause & volatile moves

Equity markets registered the highest weekly closing in history. With volatility in the global market, the domestic market impacted to a higher degree. The NSE Nifty gained 363.15 points or 2.07 per cent during the last week. The BSE Sensex also gained by 2.2 per cent. The Nifty Midcap-100 and Smallcap-100 indices are up by 3.4 per cent and 3.7 per cent, respectively. On the sectoral front, Nifty Auto, IT, and Energy indices closed with 4-4.5 per cent. The FMCG and Pharma indices are down by one per cent and 0.5 per cent, respectively. All the other indices decently gained over one per cent. The FIIs sold Rs3,554.26 crore and DIIs bought Rs2,844.97 crore during the last six sessions. The Market breadth is in favour of advances.

Technically, the market is poised for an interesting price action next week. It formed an inside bar on a weekly chart and a long-legged Doji on a daily chart. It formed a parallel high and highest weekly closing. As of now there is no trend changing implications. Last Wednesday's big bearish engulfing bar fails to get a confirmation for its negative implications. Importantly, the NSE Nifty has not closed below the previous week's low since July this year. It formed parallel tops and higher bottoms for the last three weeks, which is a bullish pattern. The structure looks like a Cup, a perfect base for a continuation of the trend. A one day close above 17,948 is enough for a fresh bullish breakout. The week's consolidation has given enough breath for the market. This consolidation has witnessed high volatility, as we expected earlier. The Nifty closed 1.4 per cent above the 20DMA and 5.08 per cent above the 50DMA. As it trades above the key moving averages, we expect the index to continue with a small pause and volatile moves. A close below 20DMA of 17,648 and cup bottom of 17,452 will give weaker signs.

For the last 23 trading days, the Nifty has been trading in the 650 points range. It is the longest range after the June-July range. The present 17,300-17,948 range is clearly above the 20DMA and forming higher lows. Though the Nifty is still below the upward channel and facing resistance at the demand line, it may not be a problem for the trend, as the index registered a new high close.

The index is at a new high, but the RSI has yet to make a high. This divergence is because of the last 23 days of consolidation. If the RSI moves above 68 along with the Nifty above 17,948 will give a sharp move. RSI formed a double bottom pattern, is also bullish. Another important factor, the positive directional movement indicator +DMI and the trend strength indicator ADX are above the 25 zone, which is very positive for the market. The -DMI has been sustaining below the 25 zone since the July breakout. The above factors show technical strength in the market.

Let us discuss some negative in the current trend. Last week the crude oil price crossed $83, and the Rupee depreciated to 75 per US dollar. The Dollar index DXY has crossed 94. These are the fundamental inverse relationship with equity markets. Any rise in these is not good for the market. Importantly, there are concerns over stretched valuations. Last week's neutral RBI monetary policy has turned out largely to be a non-event for the market.

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