Bullish sentiment waning

The December series ended with a positive note, even though it fell in the last week of the month. The Nifty gained by 1,383 points or 12.73 per cent in 2019 (another two sessions left).

The Nifty Bank gained most with 19.34 per cent. But, the broader indices Nifty Midcap-100 lost by 3.6 per cent and the Nifty Smallcap lost by 10.73 per cent.

On a weekly basis, Nifty and Sensex ended with a marginal loss of 0.2 per cent and 0.3 per cent respectively. But, the broader indices Nifty mid and smallcap outperformed the benchmark indices.

Nifty Midcap-100 rose by 0.6 per cent and Nifty Smallcap-100 index gained by 1.1 per cent. The metal and media indices were gained most by 1.9 per cent and 1.6 per cent respectively. The FMCG and IT indices lost by 0.7 per cent and 0.4 per cent respectively.

Nifty formed a Doji bar at a near lifetime high. The benchmark index did not cross the prior week high, made a lower high on a relatively lower cash volume. The volumes have been decelerating for the past two weeks.

Even in the Nifty futures volumes are below the 21-day average for the whole month except December 4. Nifty fell 153 points during the first three days of trading. The highest fall registered on December series expiry day after December 6 and added a distribution day.

But the January series began with a big bang and retraced all the losses in a single session led by banking stocks. Markets are making higher highs and higher lows since September 2018. Barring one, fall is limited to two to three days since then.

Though the market is making higher highs, all the major indicators are still unable to make new swing highs. As we discussed in earlier columns, this negative divergence is still valid as long as the RSI maintains below 68 level. Nifty is facing a major trend line resistance at 12350 levels.

As mentioned earlier in this column, above 12150 Nifty can test the 12300-400 levels. This target is still valid as long as the Nifty maintains above the Thursday's low of 12119.

In any case, Nifty falls below this level, and the minor short-term trend will turn into a negative zone. The MACD histogram is flat for the past four weeks.

It is clearly visible that the bullish momentum is waning. The recent consolidation base 11850 can be considered as a short to medium term bottom. We can expect this level will be protected for the next month.

The Finance Minister's meeting with bankers and hopes on the government to introduce substantial cuts in personal income tax, withdrawal the long-term capital gains tax on equities,

removal of dividend distribution tax lifted the sentiment in the market in the new series.

With these hopes and the Oct-Dec quarter earnings season will have a substantial impact on the market.

The January series may be volatile as a major economic event is scheduled and the earnings season begins. As we are trading at historical high price-earnings (PE) ratio, any kind of earnings disappointment will lead to a reasonable correction in the market.

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