Charts indicate caution alert

The weaker global markets and the high volatility dented the investor sentiment. The benchmark index, NSE Nifty, traded in the 378.90 points range and finally settled with 155 points or a 0.91 per cent decline. BSE Sensex also declined by 0.80 per cent. The Midcap-100 and Smallcap-100 indices are down by 1.75 per cent and 1.88 per cent, respectively. On the sectoral front, Nifty Pharma and FMCG gained by 0.68 per cent and 0.45 per cent. The Nifty Realty and IT indices were down by 4.52 per cent and 3.18 per cent. All other sector indices also closed with losses. The market breadth was negative. During the last week FIIs sold Rs6,654.23 crore, and the DIIs bought Rs9,430.59 crore worth of equities.

The Nifty faced resistance at 17,200 points, as we made a forecast last week. It made a lower low on the weekly time frame, and the sloping trendline resistance acted as a strong resistance. Weekly RSI declined below the 40 zone, showing the market's inherent weakness. For the second time, the Nifty has formed three consecutive strong weekly bearish candles after December 2022. The heavy selling pressure on Friday evidently damages the price structure. The last two days' volume is also higher, which is an indication of fresh distribution after a small retracement. During the three-day technical pullback or retracement, the Nifty failed to test the 20DMA. Interestingly, the Nifty decisively closed below the 100-week average after July 2020. This crucial moving average acted as a support during September 2020, and June 2022. The index is sustaining below the rising trendline support drawn from March 2020 lows. With a series of lower highs and lower lows, the Nifty is in a downtrend and below all meaningful supports.

The weekly RSI and MACD are in the bearish zone. RSI decline below the 40 zone, and rising trendline support along with the price. The MACD histogram shows a sharp increase in the bearish momentum. The pattern analysis shows that the channel support is placed at 16,800 points. The previous major swing low is at 16,747 level. This 16,800-16,747 zone will be crucial for next week. In any case, another round of retracement must move above the 17,207-17,225 zone of resistance. In such a scenario, the Nifty will form a base and will result in a breakout. At the same time, this breakout must attract higher volume, and sustain for at least three days. On the upside, it may test 200DMA of 17,464 points. We can't forecast more than this.

Apart from the global banking crisis, an increase in STT on Futures and Options (F&O) will be a big negative for the market. It may hurt volume and FII flows into the market. The global indices are below the crucial supports and in a strong bearish mode.

The analysis of Relative Rotation Graphs (RRG) shows that all the sectoral indices are losing momentum, and none of them is not in a position to lead the market. Though PSE, FMCG, IT, and Auto indices are in the leading quadrant, losing momentum.

The Consumer durables and Pharma sectors are gaining momentum. Focus on the opportunities in these sectors. The sector leaders and defensive stocks in these sectors may be in the limelight.

The market is at a crucial juncture as the index has reached to previous major swing low. As Thursday is a holiday on account of Ram Navami, the monthly derivatives expiry is a day earlier than usual. The 16,800-16,700 zone is very crucial for now. Otherwise, the decline will further sharper. Stay cautious in the coming week.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)