Nominal gains but mkts still under bearish grip

Began with a weak note and formed low on Monday at 10782. Recovered sharply in the second half of the week and closed above the psychological mark 11000. Nifty gained 112.3 points or 1.02 per cent last week.

The broader index Nifty 500 also rose by 102.60 points. The Nifty Midcap index closed with 1.5 per cent gain and Small-cap index with 1.2 per cent gain.

On Wednesday witnessed huge volatility with RBI monetary policy. The Banknifty, FMCG and Realty indices also gained with 1 to 1.5 per cent gains.

The recovery from the 61.8 per cent retracement level of Oct-June rally faced resistance at 200 DMA on Friday. Since Tuesday Nifty formed higher lows on a daily chart.

Nifty also faced the resistance at 38.2 per cent level of 17th June - 5th August fall. But, closed above the 23.6 per cent retracement level of 3rd June - 5th August downswing. This is a very early signal recovery.

The rally attempt needs to some more follow-through days to continue the rally. The overall cash volumes are higher than the previous week. But there is not much accumulation witnessed at the bottom levels.

The bearish pattern, a Shooting star appeared at the multiple resistance levels is a concern for Monday. The Derivative data indicates that the long unwinding happened on Friday as there is a long weekend.

As there are only three trading sessions next week, traders are not shown interest carry forward the positions. Technically, we need to wait till closes above the 200DMA (11167) to gain positive strength.

Historically, market correction can be classified into three distinct categories. 1. 11-13 per cent correction from the top. 2.

25-30 per cent corrections and 3. 50-60 per cent correction. Now Nifty corrected 10.91 per cent from the 3rd June top of 12103.

But, the majority of the listed stock corrected 25 - 80 per cent. This shows the broader market weakness. Even the heavyweight like Reliance is trading near to its 52-week low.

By breaching May lows and 61.8 per cent retracement on intraday basis on August 5th, Nifty given a long-term bearishness.

But the recovery on hopes some of the current and previous budget proposal rollback needs actions. The broader Nifty-500 index is much below the 200DMA. The Nifty-50 and Nifty 500 indices also faced the resistance at 14th low point.

Apart from this, all the indices are still below the short to medium-term averages. Most of the indicators came out of the oversold condition and showing some strength with two days of a rally attempt.

The leading indicator RSI now at 42.27 needs to move above 50 to breach the prior swing high and confirm the counter-trend rally. The MACD line is about to cross the signal line.

If the MACD histogram moves into positive zone them the momentum will also pick upside. On the directional index, the bearish strength is still higher than the bullish strength as +DI is much below the -DI.

To move higher levels Nifty needs to close above Friday's high. Any close above 11181 will lead to the 11245 to 11354 level.

The medium-term trend indicator 5DMA is at 11574. To reach this there must be huge buying interest support. For the next three trading session, 11224 will act as a resistance point and 10980 levels can see strong support.

Any negative close on the first trading session of next week will resume the weakness.

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