Nifty forms a Doji candle on weekly charts, mkt in a consolidation mode

The historical fact is that the index closed below only 7 seven times in the last 20-yrs. During the last six years, it never closed above the open. If this history repeats, the highest probability of closing below 21727 is higher by the end of the month. As the index closed just 0.57% below the all-time high, we cannot assume that the market turned weaker

The January phobia began to repeat again. The benchmark index started the week on a positive note. NSE Nifty declined by just 20.6 points or 0.09 per cent. BSE Sensex also declined by 0.30 per cent. But the broader market indices, Nifty Midcap-100 and Smallcap-100, outperformed by 2.63 per cent and 1.95 per cent, respectively. The Realty is the top gainer with 7.84 per cent, followed by the Media index with 3.34 per cent. On the flipside, Nifty IT declined by 1.9 per cent, and the Metal index went down by 1.3 per cent. During the first week of the new year, FIIs bought Rs3,290.23 crore and the DIIs sold Rs7,296.50 crore worth of equities. The advance-decline ratio is mostly positive.

The Nifty started the week by hitting a new high on Monday. It closed just below the open and formed a Doji candle at the new high. Interestingly, the index has formed a Doji candle on weekly and daily timeframes. It also closed negative on a weekly basis. The historical fact is that the index closed below only seven times in the last 20 years. During the last six years, it never closed above the open. If this history repeats, the highest probability of closing below 21,727 level is higher by the end of the month.

As the index closed just 0.57 per cent below the all-time high, we cannot assume that the market turned weaker. The Doji candle is only a sign of indecision. The Nison’s Doji rule says that the Doji at a lifetime high needs confirmation for its bearish implication by closing below the prior candle close. If the Nifty closes below the 21710 at the end of next week, we can expect more correction for the next two weeks.

The volume was above average and higher than the previous week. The higher volume on a negative is a sign of distribution on a weekly basis. The Nifty is holding four distribution days currently. If they increase to more than six means, the market is entering into a decisive counter-trend consolidation.

The current market condition looks like an overextended rally. The weekly Bollinger Bands expansion suggests the same. The RSI is near the extreme zone and above the prior highs. The daily RSI developed a negative divergence and got confirmation of its bearish implications.

The probability of consolidating above the 20DMA of 21374 and the upper Bollinger band of 21972 is higher. In any case, if the Nifty closes above the 21834, it may test the 22100 level. But if the Nifty declines below the 21500, it the immediate support is at 20DMA. The consolidation will be fully volatile, and the stop losses are important for now. For the next one week to ten days, do not trade without stopping losses and other money management rules.

For next week, the Metal, Oil and Gas sector indices may outperform compared to the Nifty 500. The FMCG bank is in the lagging quadrant. The banks and Financials are also losing their momentum and relative strength. Though the Realty index is in the leading quadrant and in the extreme zone, it may witness the profit booking. All other sector indices will be subdued. The IT may renew the momentum.

All in all, the market is in a consolidation mode. The volatile moves will hit the stop losses. Stock-specific activity will continue and may shift to the large caps and IT sector stocks.

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