Mkt likely to be volatile this week

Capital markets ended in positive territory for the seventh consecutive week. But last week, they closed where they opened, means indecisive pattern on the top. The BSE Sensex closed 38,862 up by 190 points, and the Nifty closed at 11,666 with 43 points gain on a weekly basis.

The broader Mid and Smallcap indices closed almost flat. Another major index BankNifty fell by 342 points or 1.13 per cent. In the wake of RBI's monetary policy and Skymet's below normal rains forecast in upcoming monsoon, the market turned negative for two days. Last week, Foreign Portfolio Investors (FPI) poured Rs 1946.76 crore into the equities.

The benchmark index Nifty tested the previous lifetime high last week. The index formed a long-legged doji on top, thereby not giving any clues for further direction. The investors are indecisive at this stage.

And a streak of bearish and indecisive patterns at lifetime highs is not a good sign. Nifty repeated its pattern - falling for two to three days and then recovering. The last week's fall tested the upward channels resistance line and moved up.

As per the TraderVic's rule of breakouts, the retest gives traders to be with a positive bias if Nifty trades above the upward channel. In any case, Nifty falls into the channel again means the breakout is failed. In this scenario, for the next week, 11,560 is the critical level for the bulls.

Below this level, the bears will take an upper hand again. The Nifty took strong support at 8EMA and bounced back on Friday. The upper Bollinger band is turning down for the last three days, which is an indication of momentum waning.

The Nifty is trading above 5 per cent to the 50DMA and more than 6 per cent to the 200 DMA. This indicates that the longer-term bullishness is still intact. The negative divergence in the RSI indicator did not get any confirmation. Only the case of RSI closing below 63 levels may cause of worry for bulls.

Currently, RSI is at 67.81. Jeff Tompkin's TradeTrend, the criteria for a sell setup, occurred 1 bar ago. Based on the alignment of technical patterns (including volume, volatility, momentum and other trend factors), the probability of prices moving in the anticipated direction is currently at its highest.

The suggested entry price is 11,557. Though the market is closing in positive territory for the last seven weeks, there are clear signs that upside momentum is waning.

Apart from RSI negative divergence, the MACD histogram came down to just 1.35 from 58. when price moving up and the major indicators are not forming any higher swings. Unless these indicators make new swing highs or break down below the confirmation points, the market will try to move in a range.

For next week, there will not be any clear trade between the 11,560-11,762 range. Only outside of this range, traders will see opportunities either side. If it moves above 11,762 on a closing basis, the targets are open towards 12000 and above.

But, in any case, if it closes below 11560, the downward move can take the Nifty towards 11200 levels. At near to the lifetime highs, with many indecisive patterns, risk management only can save the capital.

The volatility can rise next week. As FY19 financial results will begin from next week, let us wait and see how many heavyweight stocks can improve their earnings and push the Nifty PE to the reasonable investment level.

As PE is at lifetime high and in bubble zone, better to be cautious about selecting the stocks.

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