Market course hinges on Q3 results

 Markets continue to be volatility. The benchmark indices closed 1 per cent lower. The Sensex closed at 35,695, down by 381 points and Nifty down by 133 points. The Nifty Midcap index closed 1 per cent lower and Nifty Smallcap index is down by 0.6 per cent. The broader market index Nifty 500, which is a combination of large, mid and small caps also fell by one per cent. 

Of the 48 developed and emerging markets, only six are in a Confirmed Uptrend. However, the course of India’s stock markets depends on Q3 results which will start in January. During the coming week, the Nifty constituents TCS, Infosys, Indusind Bank are declaring their Q3 financial results. Let us see whether these results will give a good breakout either side of the rangebound activity.

Technically, the 200EMA of Nifty is flattening with price action hovering around this moving average. One key element is that the benchmark index has not breached the 61.8 per cent of earlier bigger downfall. Also, the major index is not making any lower low as of now. It is making a base around 10535- 10,600 level. It also took a support at 50 DMA. Unless the Nifty breaches the 50 DMA and turn down, we cannot expect further correction in the markets.

Even the leading indicator RSI is making base around 45, which is also historical strong support base. The interesting divergence here is that Nifty is making higher lows but the RSI is making lower lows. In these conditions, generally, the future price action follows the leading indicator. The trend strength indicator ADX is still not showing any improvement. One another interesting point is Nifty is still moving within the range of October 2018 high (11035) and low (10005). 

These levels are very important for market to break for decisive trend.  Among all, Nifty formed a bearish engulfing pattern on weekly chart, following two bearish formations in previous weeks. To get confirmation to this bearish formation, the Nifty needs close below 10,628. With these technical evidences, the market remains in an Uptrend Under Pressure. Distribution days remain at four on the Nifty. 

It will change the status to a Downtrend if 1-2 more distribution days are added. On the other hand, the market will be moved to a Confirmed Uptrend if the Nifty retakes the 10,942 level (its high during the recent rally). It is time to gear up for third quarter results from companies. Investors need to watch out for corporates which post sales and  EPS growth of at least 20–25%. The studies on big winning stocks have shown that big price moves follow such accelerations in earnings.

(Brahmachary - The author is a technical analyst. He can be reached at tbchary@gmail.com)