Markets need strong up move to rally

The Geopolitical tensions resulted in a black Monday last week. The benchmark indices opened with a big gap and experienced a high volatile movement. The market experienced a sharp recovery on Tuesday and consolidation during the three days. After 681 points of volatility, the Nifty lost 98.45 points. The BSE Sensex lost 1.3 per cent. Only the Nifty IT index closed positively last week with just 0.30 per cent. Pharma index lost 2.2 per cent, and the Banknifty declined by 2.3 per cent. During this month, FIIs sold Rs.21.928.08 crores, and DIIs bought Rs16,429.46 crores worth of equities. Broader market breadth is negative for the week.

The Nifty has closed below the 20weekly moving average for the fifth consecutive week. It also formed two successive long-legged doji candles. The 20WMA is in a downtrend. The index has tested the four-week low and bounced. The 16800-830 has become a strong support zone. Even on the daily chart, the 20DMA acts as resistance. At the same time, three bearish candles in a row at 20DMA resistance is another roadblock for the market.

The Indices failed to form a higher high or swing high. The broader market weakness, missing leadership from the sectors, and heavyweights are visible. The three lower high candles in a row is a sign of weakness. The 200 point range consolidation of three days may result in an impulse move again. The 20 weekly average currently at 17592 is the strong resistance for the short-term. It is moving in a downward channel, and it needs to take out the channel resistance to resume the uptrend. Next week, a close below 16800-17000 will be a big negative for the market. The support is at the channel demand line at 16156, which is lower than the prior swing low. Testing this level has the highest possibility. Below the 16156, the next level of support is at 15550. We may get clear long-term trend indications in the next two weeks.

Even the global markets are in topping formations. The Dow and S&P 500 indices have formed bearish topping formations Head And Shoulders, which is a dangerous signal for the market. The interest rate cycle to begin upwards as Fed announced to increase the rates several times this year. And the Gold has seen a safe haven for the investors. Gold and the 10-year bond yields witnessed a technical upside breakout. These instruments have an inverse relationship with equities. With this, the bigger picture for equity markets worldwide remains bearish. As long as the Nifty sustains below the prior swing highs 17639-794 is not conducive for fresh equity purchases.

The Nifty holds six distribution days, and the trading 50 DMA is a downtrend signal. We need a strong up move for a rally attempt. Several Nifty-500 stocks are trading below the 50DMA. The outperformance of large-caps in the previous week has followed the next week. Finding a weekly base breakout in the broader market has become very difficult. The relative strength of Nifty is still struggling compared to the Nifty500 index.

On the front of the indicator, the weekly RSI is in the neutral zone. MACD shows a bearish bias, and the momentum is negative. The 200DMA is tested after 24th September 2020. Currently, the 200DMA is placed at 16851. As stated above, a close below this long-term indicator will have serious long-term trend implications. Over the next two, the market will move in the neutral to the negative zone. It is recommended to avoid big size leveraged positions, trade with a light position size, and exit some of the profitable positions.

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