Swings turn narrower as volumes decline

The last week began with a weak note with a significant decline on Monday. However, the market recovered, closing higher in the remaining four days. Finally, Nifty settled with 142 points or 1.3 per cent gain at the end of the week. The BSE Sensex rose by 1.2 per cent. The broader indices were outperformed with Nifty Midcap-100 and Smallcap-100 advanced by 4.1 per cent and five per cent respectively.

On the sectoral front, Nifty Metal index gained most by 7.8 per cent and followed by auto with 3.8 per cent. The FMCG, pharma and realty sectors gained 1.5 to 2 per cent. The Pharma index closed above the prior swing highs and proved our bullish stance on the sector.

The Nifty support levels increased from 10,550 to 10,882 as it formed another higher low at the 200-DMA. As long as this support is protected, the market will consolidate furthermore time. In any case, it moves above the 11,341 or a recent swing high, the next level of resistance is placed at the channel resistance around 11,600. After a failed breakdown of the rising wedge, it moved into the rising channel. For the last three days, the Nifty is trading in the small range and forming indecisive candle. This indecision or an oscillation within range is because of valuation worries. As it protected every bottom, the current nature of the market is to buy on the dips. In the consolidation phase, we may see high altitude swings or faster retracements. It may move upside, but the rise may be limited to around one per cent. As the 78.6 per cent retracement is at 11377, first the Nifty needs to take out this level with higher confidence with a high jump kind of move. After Tuesday's move, it remained within 200 points range for the last three days during the week. The scrip-specific activity and the sector rotation is happening in the market. On the divergent indicators, including fundamental structure market, we need to be cautiously optimistic.

On the 75 minutes chart, the Nifty is oscillating around the channel resistance line. Even though it has broken out of the channel, post-breakout move is missing the confidence. It was sustaining above the 20-period average and forming an ascending triangle. A close above 11257, will lead to at least 200 points up move. The Swings are becoming narrower and narrower. The volumes are declining for the past month. The institutional participation is limited. In this condition, it isn't easy to trade index. The 20-DMA was acting as short term support, and incidentally, it is at the channel support line of 11,035. The 200-DMA and the swing low are at 10,850 and 10,882. Now, the market has to protect the 11,035-10,850 zone. Use this zone as trailing stop loss and be positive on the market. Once this zone support is violated, the Nifty may take support at the previous swing low of 10,550. Only below this level, the market turns bearish. As markets are trading at near lifetime high valuations, it is the right risk management that will be key for protecting the capital. The pharma is outperforming in the current market. Nifty IT and the Metal indices are near breakout. Identify the outperformers and leaders in these industries to invest or trade.

(The author is a financial

journalist and technical analyst. He can be reached at tbchary@gmail.com)