Market course hinges on this week's close

Profit booking in a majority of heavyweights leads the benchmark indices cooling off from highs at the end of the week. Nifty gained just 30 points or 0.26 per cent on a weekly basis. The Sensex rose 0.37 per cent, and the Bank Nifty gained 201 points or 0.68 per cent.

The broader indices Nifty Midcap down by 0.68 per cent and Small cap closed just flat. Momentum has slowed down in all the four trading sessions last week and traded in just 160 points range.

After more than 500 points rally, for the first time, Nifty closed below the prior day's low which is a clear signal of bulls tired for the time being. The day after Federal Reserve monetary policy and fears of slow down, the US markets were down by approximately 2 per cent. This will impact all other world markets next week.

Technically, Nifty formed a bearish Shooting Star pattern at the top on a weekly chart. With this, we can say that the market formed an intermediate top at 11,573.

If the Nifty is unable to cross the last week high and closes below the 11,456-11,410 next week means, it is a confirmation that the intermediate top is formed. On a daily chart, the price breached and closed below the prior bar low. As we cautioned last week, this is another sign of weakness.

Now, we need to wait to see what level Nifty will retrace and then bounce back. Most of the indicators are already in the overbought zone and most of them are confirming the bearish implications.

The RSI after reaching two years high now is turning since the last two trading sessions. The other major index Bank Nifty, which led the recent rally, formed a Bearish Engulfing pattern at lifetime highs which is not a good sign for the market.

As momentum in the market is waning, the histogram in MACD is also confirming that the upside is almost stalled. The Stochastic oscillator clearly crossing under at extreme range is also a weak signal.

The Nifty is still trading above all, the short to long term moving averages. We need to wait till the Nifty closing below the short-term moving average. The immediate support placed at 11,396. After this, another significant support is at 20DMA 11,122, which is also a prior swing high.

In case Nifty falls below the breakout level (10,985) in the near term, the recent breakout will fizzle out. On the upside, only one level to be watched is Friday's high 11,573. Nifty moving above this level means bulls are back with strength.

The other way we can strategise for next week is to watch Monday's opening. If it opens negative, be with bearish tone, otherwise wait till it breaches the 8EMA to be bearish.

With these technical parameters, avoid long positions until it moves below Friday's high. Next week close will give cues about the short-term direction to the market.

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