Key indices likely to consolidate

The Indian stock market began with a big fall on Monday. It declined over 3.5 per cent on a single day. It was the biggest fall after 26th February. The following positive days for three days cropped the losses, but failed to fill the Monday gap. For the second successive week, it closed with a loss. The Nifty lost 217 points on a weekly basis, settled at 14617.85. Only the Nifty Pharma index gained by 1.8 per cent. All other sectoral indices declined. The PSU Bank index lost the most by 6.9 per cent, followed by the Reality index with a 5.7 per cent decline. FIIs sold Rs. 2596.76 crores this month, and the DIIs bought Rs.1736.57 crores. The overall market breadth is mostly negative.

Technically, the Nifty formed identical candles for the last two weeks. On Monday, the Nifty breached the long weekly trendline support and the 100DMA support, which is negative for the Market. Though it closed above these support lines, it shows the weakness in the overall Market. At the same time, the Nifty failed to form a higher high. It moved above the 14880 zone twice, but failed to close above it. Even on a weekly chart, it formed a lower high. Two successive doji candle on weekly chart shows the indecisive on the direction.

The weekly price action confined to Monday's range and did not fill the gap. On Friday, with the late hour selling pressure, the Nifty formed a shooting star kind of a pattern, which is bearish. Importantly, the fall on Monday has broken many critical supports and formed a new low post-budget day. As I mentioned earlier, the broader 1000 point range of 14469-15431 has broken many time during the five weeks.

At the same time, the range of 14800-14265 also broken on the downside. These are the significant weak signs. Even on the shorter period chart, the 14700 levels worked as resistance on Friday. After several efforts, the Nifty declined below the four 75 minutes candle at one go. The long lower shadows on the weekly chart show the buying support at the dips. It also faced resistance at 21EMA and closed below the 20DMA. Above these levels, 14880-14985 is the key resistance zone.

Only above these resistances, Market will see the new highs. But, in any case, the Nifty closes below 14550 is enough to resume the downtrend. As the next week also truncated, with Wednesday being a trading holiday, it is expected that the Nifty may consolidate further between support and resistance. The 14 periods weekly RSI (59.41) is below the prior swing low, which is a bearish sign. It is moving in lower highs and lower low fashion. No positive divergence is visible. The MACD histogram shows an increased bearish momentum on weekly charts. All the directional movement indicators are below 25 is a weak sign.

India VIX is slightly up by 3.12 per cent to 20.40, indicates increased volatility. The latest earnings mixed, and there are no pleasant surprises. The Nifty PE is still high at 32.84. The current earnings failed to influence the market direction. In fact, they did not show any impact. Unless there is a significant improvement in the earnings, we cannot expect the liquidity push will support the Market. The FIIs are already paring their inflows. The DIIs are not matching the selling pressure. As the Mid and Small-cap underperformance once again created a dilemma among the retail participant. The Covid-19 second wave spread is faster and more aggressive. The Government may not be interested in imposing the nationwide lockdown, but the prevailing health emergency kind of situations certainly dampen the sentiments for sure. No negative triggers do not mean Market move up. It may consolidate further till the business environment improves.

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