Weekly MACD Shows Easing Momentum

Next week will be crucial for the markets. First, the reactions from the institutions to the Budget. Second, RBI monetary policy. Third, the introduction of a direct tax code in the Budget. Fourth, the Delhi assembly election outcome. The four factors will decide the market direction

In an extended trading week, the equities benchmark indices ended a three-week losing streak. NSE Nifty gained by 1.69 per cent and BSE BSE Sensex up by 1.73 per cent. The Midcap-100 and Smallcap-100 indices advanced by 0.42 per cent and 0.14 per cent respectively. On the sectoral front, Nifty Realty is the biggest gainer at 9.91 percent.

The FMCG and Auto indices up by 4.81 per cent and 4.54 per cent, respectively. The Nifty IT, Pharma, Media, and Metal indices are down by 2 - 2.81 per cent. The market breadth is mostly positive. The India VIX cooled off from 19.01 to 14.09 during the week, as the event risk is over. The FIIs sold Rs87,374.66 crore in January month. The DIIs bought Rs86,591.80 crore worth of equities. The equity indices have not reacted to the General Budget this time. The Nifty and the Sensex closed flat on Saturday, as the institutional investors did not participate, and as a result, the volumes were very low on event day. Watch the FIIs reaction on Monday for the proposal to increase the capital gains tax. On face off it, the Budget looks neutral and non eventful.

Technically, the Nifty has formed a bullish engulfing candle after three weeks of negative bias. The Index opened with a gap down on Monday and formed a lower low. It was corrected by 13.28 per cent and completed the Category-1 correction, which we have been mentioning for the last two months. Now, it is important that the bullish engulfing candle must get a confirmation for its implications by closing above it.

This means the Nifty must close above the 23,633 level. It is also the 200EMA (23,621) level. The Index faced resistance on Saturday at this long-term average. Above this, the 50DMA is at 23,809 points, and the 200DMA is at 24,005 points, which are the important resistance points. For a trend reversal, the Nifty must clear all these resistance points.

As the absence of institutions on Budget day, the volumes were much lower after January 1 and below the average. The weekly volumes show an increase, and the highest volume was recorded after 8 weeks. This can be a hint about the index’s positive bias for next week. The contraction in Bollinger bands hints at an impulse move in the coming days. The Index has rallied 845.55 points or 3.71 per cent from Monday’s low. The volumes were higher in this rally.

The RSI is above the 50 zone. The weekly RSI taken support at 40 zone moved higher. The daily MACD has given a bullish signal below the zero line. The weekly MACD shows declined momentum.Next week will be crucial for the markets. First, the reactions from the institutions to the Budget. Second, RBI monetary policy. Third, the introduction of a direct tax code in the Budget. Fourth, the Delhi assembly election outcome. The four factors will decide the market direction. Expect the high volatile moves during next week.

The VIX and IV already cooled off. Now, Watch the Nifty’s behaviour around the 23,250-650 zone. If the Index closes below 23,267 level, it will be negative and can resume the downtrend. A close above 23,621 will be positive and will continue the upward rally. With the Budget proposal, the Consumer, FMCG, and Auto stocks will be in the limelight. Stay neutral on Railways and Defence. Monday’s closing will hint the future direction. Even after the Budget is over, it is better to stay on the sidelines as more events are scheduled next week.

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