Nifty hovering in consolidation range

The domestic equity markets were resilient to the global downfall and closed flat after a volatile week. Last week, NSE Nifty was down by just 19.45 points, 0.1 per cent. The BSE Sensex closed flat with just a point. The broader market indices - Nifty Midcap-100 and Smallcap-100- outperformed the market by gaining 0.9 per cent and 0.3 per cent, respectively. On the sectoral front, the Realty index is up by 3 per cent, which is the top gainer. Bank Nifty, Auto, FMCG and Financial Services indices gained by 1-2 per cent. The Nifty IT index is down by 3.3 per cent. After September 2021, the FIIs flows turned positive. They bought Rs22,025.62 crore, and the DIIs sold Rs7,068.62 crore worth of equities in August. In the last two trading sessions, the FIIs sold Rs2,299.10 crore, and The DIIs bought Rs282.39 crore.

The domestic markets experienced volatile moves, whereas the global markets declined sharply on the downside. The Nifty traded in 611 points range and finally closed flat. But it declined 238 points from the week's high. It opened with a gap down and made a lower low. The Index has faced resistance at the sloping trendline drawn from October 2021 high. For the last three weeks, it has been testing the resistance line failing to surpass it. Even before that, two major swing lows formed at this trendline resistance. As a rule, seventh resistance is a rare phenomenon. Importantly, the 23.6 per cent extension of the current consolidation is exactly at 17801. For the last three weeks, this has been a herculean task for the Index. Even on the daily chart, the Nifty is just shy of crossing the trendline except for 30th August. It oscillated around the trendline for the last nine days.

Indian market's resilience to fall is a surprise to everyone. The Dow Jones index fell over eight per cent from the 16th August high. And it never showed any recovery above the previous week's low and closed at the lowest level of the week. Importantly, it closed below the 61.8 per cent retracement level of the prior upswing. The S&P 500 declined by 9.3 per cent. The Nasdaq is down by 12 per cent. But, our benchmark index, Nifty down by just 2.5 per cent, and the broader index Nifty 500 declined by only 1.58 per cent. The Nifty IT index is the only worst performer, with 8.95 per cent from the recent high. All the IT majors declined by 6 -12 per cent. This is the only sector acting as an obstruction to the breakout. Year to Date (YTD), The Dow has given 14 per cent negative returns, and DAX has given 21.14 per cent minus returns. But the Nifty has registered just 0.47 per cent negative returns.

Technically, the Nifty has formed two consecutive inside bars. After 600 points move, the two-day consolidation is below the 20DMA. The Index's failed breakout the previous week has given an initial reversal sign, as it formed a shooting star candle. It also got confirmation by closing below the shooting star low last week. The RSI declined to a neutral zone. The declining MACD and KST lines on all time frames are also showing a loss of momentum. We keep mentioning declining Relative Strength. It shows the underperformance of the benchmark index compared to the broader market. During the current upside swing, Mansfield's relative strength indicators is below the zero line and currently almost at the lowest level.

On a weekly chart, the Nifty formed a candle without a lower shadow and formed a lower low candle. Though it made a higher high, it faced resistance. The Index traded within Wednesday's range, but formed bearish bars on the Elder impulse system. The Nifty is holding the 23.6 per cent retracement level except on Tuesday. The breakdown failed with a massive 446 points short-covering rally. As the Bollinger bands are narrowing and flatten, expect consolidation between the 17950-17250 zone for a few more days. As the Index is already below the 20DMA for the last two days, the probability is on the downside. For a decisive breakdown, it has a close below 17329 for at least two days and a close below 17166. A big gap down and negative close at the beginning of the next week also gives an early signal for reversal. As mentioned above, the 17800-18115 is a crucial resistance zone. A weekly close above this zone will open the gates to the new high. Generally, a breakout after several resistances testing will be an impulsive one. In such cases, the upside targets are placed at 19421. This is the most optimistic view in a bull case scenario. The only positive thing is that the Index is still with only two distribution days.

Next week, it is likely to have a stock-specific activity. If the Index avoids the gap down, The Nifty may consolidate within said range. Be with the neutral strategy on Index. If it trades above 17329-166 zone, it is better to avoid aggressive shorts.

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