15,431 could be intermediate top for now

Dalal Street witnessed the biggest fall in the last ten months during the previous week. It had opened on a negative note on Monday and showed some strength during the next three days.

But, geopolitical tensions and FII selling brought markets down by 3.75 per cent Friday, a black day. The Nifty fell sharply by 452.60 points last week and settled at 14,529.1. The BSE Sensex lost by 3.5 per cent.

Broader market indices, Nifty Midcap-100 and Smallcap-100, were down 0.7 per cent and 0.9 per cent respectively. The Nifty-500 index, which represents 90 per cent of the market capitalisation, declined 2.07 per cent. On the sectoral front, Nifty Metal index was up 7.6 per cent, and Energy and Realty indices advanced by 0.5 per cent each.

The Nifty IT declined by 4.7 per cent while Financial Services was down by 3.9 per cent. FIIs made a net investment of Rs 18,169.79 crore last week. If the investments of Rs 30,000 crore in Bosch and MSCI buying of Rs 8,300 crore were taken out, they actually sold stocks about Rs 20,130 crore. DIIs bought Rs 280.36 crore worth of equities.

For the last few weeks, I have been mentioning about historical evidence. The "Doubling Factor and the second one is historical 'Bearish Engulfing' candles occurred at a new lifetime high. Whenever these two events occurred, the market corrected by 25 per cent.

'Bearish Engulfing' got the confirmation decisively during the last week. From a high of 15,431 on 16th February, the Nifty got corrected by 5.85 per cent. It also formed a lower swing high and low. It exactly retraced by 50 per cent of the recent swing.

As soon as the Nifty doubled from March 2020 bottom, the bulls turned cautious. It also reacted from the channel resistance. The weekly channel and the daily channel supports placed at 13,800 and 14,290 levels.

The prior swing low of 29th January is at 13,596. These are the important levels for near future. The 61.8 per cent retracement level of the prior upswing is at 14,297. This could be a very strong support level. The 50DMA support is at 14,444. For this week, 14,290-14,444 will act as an important zone of support.

On the indicators front, the negative divergences have shown their effect on the price. The RSI closed below the prior swing low and moving in a downward channel.

It reached to historical support of the 40-44 zone. Watch whether this leading indicator will be able to take support at 37. The MACD is approaching towards the prior swing low and zero line. Though the weekly MACD still in a bullish structure, the histogram is declining and is near the zero line.

If histogram moves below the zero line, Nifty may breach the 50DMA support. The deceleration in momentum definitely is a concern for now. The negative movement indicator, -DMI, is above the ADX and +DMI. It also moved above the prior swing high. This structure is nothing but bearish.

FII flows fuelled market boom from March last year lows. As mentioned earlier, the dollar index and bond yields share an inverse relationship. . These two are now rising, leading to fall in FII flows. Last week, barring Bosch and MSCI investment, the net flow was actually very negative.

DXY and bond yields are denting the sentiment worldwide. Banking and financial services sectors which also fuelled stock market rise are now cooling off and declining very fast.

The defensive IT, Pharma and FMCG sector indices turned laggards. Mid and small cap indices are showing exhaustion. We know that fundamentally; the market is trading at the historical highest valuations. The price to book value ratio is at 12 year high.

Importantly, we are in January-March topping cycle. Historically, most of the market tops were achieved in the first quarter of the calendar year. If history repeats, the 15,431 could be intermediate top for now.

(The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)