All indicators point to a bearish week ahead

Last week, Indian benchmark indices closed on a flat note despite a series of negative news flow. Nifty lost just 13 points last week.

The BSE Sensex also closed on a flat note. Among the broader indices, the Nifty 500 index also lost just 16 points or 0.16 per cent. The Midcap 100 index gained by 0.5 per cent and the Small-cap index lost by 1.2 per cent.

Nifty formed back to back bearish candle on Thursday and Friday. Even though the market discounted the negative economic data points in early trade on Friday, the last hour profit booking / selling pressure forced to close on a flat note.

The Gravestone Doji formation is not a good sign at a swing high. On a weekly chart also back to back small body, long-legged candle formation giving some suspicion about the continuity of the bullish bias in the market.

Even though it crossed the prior swing high of 11800 on 7th November, later it struggled to sustain above that falling continuously in straight sessions.

Now, Nifty added 3 distribution days as of now. In any case, Nifty adds another two distribution days in next, then the market structure will be changed from a confirmed uptrend to uptrend under pressure.

The 20DMA is placed at 11773 and the 50DMA is at 11426. The 20DMA is also near to the minor trend low. In next week, any close below the 11773-11800 will increase the selling pressure and ultimately the market trend turn into an uptrend under pressure.

Only a close below 50 DMA will change structure to downtrend. Before that, it may form lower high and lower low. Interestingly, the 23.6 retracement level is also at 11801 and the 61.8 retracement level is at 11445.

So, for the next few days, 11800 will act as immediate support and 11445 will act as medium-term support. The market may oscillate between these levels in case of bearish bias.

But, only above 11980 on the closing basis, the bulls will have an upper hand over the market.

As the leading indicator the RSI has already broken-down form an up-trending channel, suggesting that the probability of market going down is higher.

The MACD histogram is in the negative zone for the past three days. This is another bearish sign. The Stochastic oscillator has turned down below the 70 levels from an extremely overbought zone.

As the Nifty already has broken an important up trending trend line, support on last Wednesday and sustaining below that is another sign of weakness.

Several bearish evidences pointing towards a profit booking session in coming days. For the first time in this month, the FIIs turned sellers and sold more than Rs. 1008 crores worth of shares on Friday.

The DIIs are net sellers in this month and sold about 5082 crores worth shares. The overall market breadth is negative for most of the days in the last week.

As leading stocks in the Nifty in recent rally trading at a lifetime high and looks tired on the top, may experience profit booking session.

There are no positive triggers on the earnings front and coupled with negative economic data points are a worry for the market to continue its rally.

With no signs of improved demand growth, even the benefits of recent corporate tax cut will not support the market to move upside.

It is time to be cautiously optimistic. Fresh long positions are not providing a poor risk-reward ratio now. At the same time, aggressive shorts are not suggested above the 20DMA.

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