Charts indicate consolidation within range

In a truncated week, NSE Nifty traded subdued in just a 323-point range. The Nifty finally closed with 155.30 points or 0.69 per cent decline. The BSE Sensex is down by 0.68 per cent. The Nifty Midcap-100 is down by 2.17 per cent, and Smallcap-100 declined by 3.91 per cent. The Microcap-250 index is down by 4.79 per cent. The FinNifty and Pharma indices gained by 0.66 per cent, and 0.04 per cent, respectively. On the flip side, the IT index is the top loser with 4.49 per cent. The Media and Auto indices are down by 3.44 per cent and 2.17 per cent, respectively. The market breadth is negative throughout the week.

In a truncated last week, the Nifty traded in a narrow range and formed a small body, a small wick candle. In fact, the index is within the range for the last two weeks. Last week’s 427 points rally failed to get the follow-through action. The volumes were lower than the previous week. The index has oscillated around 8EMA for the past six days. The 20DMA is now just 0.84 per cent above the current price. During the last six days, the index moved is limited to a small range of 430 points; in fact, it is just 319 points. This tight base may be sustained for a long period.

Tight bases normally lead to an impulsive move in the breakout direction. The index retraced exactly 38.2 per cent of the previous downswing. The counter-trend consolidations end at 38.2 to 50 per cent retracement levels. The 38.2 per cent retracement level is at 22,668, and the 50 per cent retracement level is at 22,886. For a confirmed upside reversal, the index must be sustained above this zone. For a confirmed uptrend, the index must form a higher low and a higher high above 23807. Before that, there are several resistances at 50 DMA(23043) and 200 EMA of 23420.

On a weekly chart, the Nifty has been facing resistance at a sloping trend line for the last few weeks. This trend line is nothing but the support line of a falling wedge. As the breakdown happened on the downside, the pattern implications are no longer valid on the upside. In any counter-trend bounce, it must close above the 10-week average of 22,956. The weekly and daily RSI is in the bearish zone.

The Relative Rotation Graphs (RRG) show that the Nifty Metal, Private Bank, FinNifty, and Bank Nifty are in the leading quadrant. The Relative Strength and momentum are rising and may outperform in the term compared to the Nifty 500. The Pharma, IT, and Healthcare indices declined into the Weakening quadrant. The Media, Realty, Consumer Durable, and PSU Bank indices are in the Lagging quadrant. These sectors may underperform. The Oil and Gas, FMCG, and Auto indices are in the Improving quadrant. Any improvement in Relative Strength may lead to outperformance. Stay focused on these sectors.

Next week, the market will consolidate further within the range, before taking a directional bias. The low 22,314-587 zone is very crucial, and either side breakout will lead to a sharp one or two days move. Stay cautious on both sides. Leveraged position must be avoided.

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