RSI in neutral zone, MACD below zero signal line

The rally in the equity markets is fizzling out as the selling resumed. After days of the sharp upside move, the global benchmark indices gave up most of the gains at the weekend. The domestic markets also traded with increased volatility. The benchmark index, Nifty, gained 220 points or 1.29 per cent. BSE Sensex also advanced by 1.3 per cent. The broader indices, Nifty Midcap-100 and Smallcap-100 indices, were outperformed by 2.4 per cent and 2.6 per cent, respectively. The Nifty Metal and Realty indices were the top gainers with 4.8 per cent and 3.4 per cent, respectively. Nifty FMCG declined by 1.3 per cent.

Market breadth has been mostly positive during the last week. The FIIs resumed the selling pressure at the weekend. On Friday, they sold Rs2,250.77 crore. Overall, the FIIs sold Rs36.55 crore in the last week. DIIs bought Rs1,024.09 crore.

The Nifty was able to close above the previous week's high and formed a bullish candle. The 20Week moving average has been acting as support for the last two weeks. It filled the previous week's gap area. It retraced and faced resistance exactly at the 50 per cent retracement level. It also tested the previous parallel bottom supports. Though the index closed positively and formed a higher high, higher low candle, it is still within the range as it traded between 200DMA and 50DMAs. The index traded in the 573 points range. Important technical developments occurred last week, indicating caution for the bulls.

The 20DMA cross under the 50DMA, which is negative for the short term. The 20DMA is in the downtrend. The Nifty gets the confirmation on Friday for the Evening Star candle, formed on Thursday. Even though the index recovered from the day's low, it closed below the previous day. For the last three days, the index sustained above the Double Top breakdown level. In general, the Double Bottom patterns retest the breakdown level. In any case, a close below 17,166 will resume the measured down move towards the 61.8 per cent retracement level. Importantly, for all practical purposes, Thursday's high is a minor high as long as it has been violated.

For next week, the 20Week average of 16,854 will act as crucial support. Before that the 17166, the Double Bottom breakdown point, is a minor support. Below this 17166-16854 zone of support broken, the index will test 16296, sooner or later. All the swings in a trend will correct 61.8 per cent. Any recovery on the upside will face the resistance of the 17448-471 zone. These levels are nothing but 20 and 50DMAs. The Nifty is sustaining below the slopping trendline resistance for the fourth week. The RSI is in the neutral zone, below 50, and the MACD is below the zero signal lines. There are no divergences visible now. The histogram shows that the momentum is waning. In any case, the Nifty closes below 16854 by next weekend; with all probabilities, we are going to test 16296. We have closely watch the behaviour between 16296 - 854 zone. Any increase in volatility and impulsive declines will show the future direction. On the other hand, the global markets have given up all the gains made at the beginning of the week. Nasdaq almost tested the week's low. Over a two per cent decline in all major indices will definitely influence our market on Monday's opening. Interestingly all the major global indices formed Sooting Star candles on a weekly chart. The Dollar index (DXY) closed above the three-week high and, above all key short-term averages, resumed its uptrend. The Rupee further depreciated and breached 82. The earnings season is kicking off, and stock-specific activity will be in the limelight. Any deceleration in earnings guidance will dampen the market sentiment.

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