Mkt uptrend under pressure

What Charts Say?

• Nifty settled above the counter-trend consolidation’s resistance
• Counter-trend consolidation looks like a channel or flag
• It has broken out of this flag pattern by closing above the resistance area
• Higher volumes confirmed the breakout
• Intraday price structure is unsuitable for taking aggressive long positions
• Index is still within the rising channels
• Only a decisive breakout of channels will lead to a strong uptrend

NSE Nifty scales a new all-time high and sustained for a very short period. It gained by 2.35 per cent last week. BSE Sensex is up by 1.96 per cent. The broader indices, Nifty Midcap and Smallcap outperformed by 2.69 per cent and 5.64 per cent, respectively. On the sectoral front, the PSU bank index is up by 11.47 per cent, and the Energy index gained by 8.16 per cent. On the flipside, the Media and FMCG closed down marginally by 0.26 per cent and 0.17 per cent, respectively. The India VIX is up by six per cent to 14.70. Last month, the FIIs sold Rs35,977.87 crore, and the DIIs bought Rs26,743.63 crore worth of equities. During the last two sessions, the FIIs sold Rs1,808.89 crore, and the DIIs bought Rs3,335.65 crore worth of equities.

The benchmark index Nifty ended its decline and closed above the prior week’s high. As mentioned earlier, the bears failed to pull down the index for three consecutive weeks, which was needed for a decisive downtrend. Even on the daily time frame, the index has not declined by more than three days. For a downtrend, the index has to form a lower swing low, below the 21,137 points. Until then, the market status will ‘uptrend under pressure’.

In an expected move, it formed a new lifetime high for a brief period. It declined sharply by 288 points from the day’s high and formed a shooting star candle. In this sharp side move, it filled the 17th January gap area. Finally, it settled above the counter-trend consolidation’s resistance. Interestingly, the counter-trend consolidation looks like a channel or flag. It has broken out of this flag pattern by closing above the resistance area. The higher volumes confirmed the breakout. One way this breakout is positive is to form a bullish bias. But on the other hand, the intraday price structure is unsuitable for taking aggressive long positions, as the index is still within the rising channels. Only a decisive breakout of channels will lead to a strong uptrend.

The Nifty sustained above the 20DMA for the third successive day, and the Bollinger bands were flattened. The 10-week average also acted as support in the second week. Unless a decisive close below the 10-week average of 21,415 occurs, the bulls will dominate the market. The 50DMA is at 21,246, which is 2.86 per cent below the current price. This 21,246-415 will be the strong support zone. The index has to break below this zone and fill the 14th December gap area of 21,074 for a downtrend. Until then, the index will consolidate within the range. On the upside, the new high of 22,126.80 itself is the resistance. Above this, the immediate resistance is at 22,232 points. We mentioned this target in our previous columns. We can’t expect more of this for now.

In any case, the Nifty closes above 22,232 decisively on a weekly basis so that we can expect more upside with a target of 23,155. As stated earlier, the 18-month target is at 26,000 points. The market expects the government’s policies to boost the many sectors and development. The PSUs will be in focus for at least another two years.

The Nifty Metal and IT sectors were entered into the leading quadrant in RRG graphs and will be the focus for next week. Though the oil and gas and real estate sectors are in the leading quadrant, they may witness profit booking as they are losing momentum. The PSU Bank index is near the leading quadrant and may also be in the focus. All other sectors are in the lagging quadrant, which may lead the market to fall.

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