MACD Still Below Zero Line On All Time Frames

The equities traded nervous last week. The frontline Index NSE Nifty Oscillated in 548.45 points or 2.35 points range and finally closed with a gain of 59.40 points or 0.25 per cent. The BSE Sensex is up by 0.46 per cent. The Nifty Mi-dcap and Small-cap indices advanced by 0.23 per cent and 0.16 per cent. The Microcap-250 index gained by 0.69 per cent. Nifty Pharma is the top gainer with 3.48 per cent, and Metal is up by 3.46 per cent. Nifty also gained by 2.12 per cent. On the flip side, FMCG is down by 5.62 per cent; Realty declined by 3.65 per cent. The India VIX has calmed down to 13.69. The selling pressure from FIIs is reduced. They sold Rs10,179.40 crore this month, and the DIIs bought Rs7,274.05 crore worth of equities.

The Nifty has formed a long upper shadow candle on a weekly chart. It faced strong resistance at 10 and 50-week averages, and a confluence of resistance is found at 23,768 points. The volumes were recorded above average, but less than the previous week. After a 1,020.40 points rally, the Index has lost its momentum. The 50DMA acted as resistance. It formed lower low, lower high candles and closed below the 200EMA on Friday with higher volume. On a positive RBI Monetary policy, this negative closing has given suspicion about continuing the upside move. The upswing ended in 8 days (Fibonacci Number), proving a historical fact that the counter-trend rallies end in 8 - 10 days. Now, as long as it trades below last week’s high of 23,807, the upswing has ended.

As stated earlier, the Nifty has completed Category-1 correction by declining 13 per cent from the all-time high. The Index has made three major lower highs and two lower lows. The previous counter-trend rallies sustained for four and two weeks. During the last 19 weeks’ downtrend, the declines were sharper than the counter-trend rallies. The Index is now 1.99 per cent below the 200 DMA. The 200EMA is already in a downtrend. Importantly, the 30-week average is in the downtrend. The 50DMA has been in a downtrend for the last three months. For the last two days, the Index has been closing below the prior day’s low, which is a bearish sign.

The RSI has faced resistance near the 60 zone and declining. The weekly RSI still hovering near 45. Even after the over thousand points rally, the MACD is still below the zero line, in all time frames. The +DMI has formed a pivot and the -DMI is rising, indicating the weaker trend strength.

For an uptrend to resume, the Nifty must close above the 50DMA (23,754) and the 50-week average (23,768), which is a strong confluence of resistance. Above this, the 200DMA (24,039) will be a crucial long-term bullish bias. On the downside, if the Index closes negative on Monday, it will test the 20DMA (23,293) sharply. Below this mean average, the Index will confirm the downside. The recent low of 22,786-818 zone will be a strong support zone. In any case, if the Index fails to bounce from this support area, it will test the 22,557 and enter the Category-2 correction. The correction will continue for another 3-4 months to complete the Category-2 correction (25 per cent from the top). The targets are open to 20,400 to below 20,000. To avoid this correction, the Nifty must close above the 23,768 and 24,040 zone of resistance on a weekly closing basis.

The Delhi election results may cause a knee-jerk reaction at Monday’s opening. The first hour range will be crucial for the day. The Government is likely to introduce the Income-Tax Bill in Parliament on Monday. Watch the market reaction to this direct tax code. Any adverse proposals may impact the market direction.

The Relative Rotation Graphs (RRG) charts show that the Nifty Auto index is picking up momentum and relative strength and is in the improving quadrant. Auto stocks may outperform in the coming days. Even though the Bank Nifty and Realty indices are in the leading quadrant, they are losing momentum. The Nifty IT and Fin Nifty indices declined into the weakening quadrant.

In a nutshell, equities may continue to trade volatile due to the risk-off sentiment prevailing. It is better to be highly selective when making a new purchase. If a sharp bounce occurs, try to protect the profits on the table and keep positions at modest levels.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)