Stay cautious as negative breadth intact

For fifth week in a row, the benchmark indices closed higher. But Friday’s low closing and series of indecisive candle on top is giving some kind of caution ahead. Both the major indices closed with 0.8 higher last week.  

Pharma stocks have outperformed the broader market and along with it, auto, metals and media sectors also did well. Bank Nifty remained lacklustre throughout the week. This index has failed to make a newer high during the week gone by and has also closed at its lowest level in as many as three weeks, which is a cause of concern for this sector.

The structure Bank Nifty is making is similar to the double top, which is a topping formation. Even the broader market underperformed the benchmark indices, as both the Nifty Midcap and Smallcap posted weekly gains of 0.5 per cent and 0.1 per cent respectively.

Both indices are still in a Rally Attempt. Though fall at end of the week, both Sensex and Nifty escaped the distribution day. Nifty breached the previous day’s at top on intraday basis but closed little higher. 

Now, Nifty has strong support zone of 11,400-11450. If it closes below this, market can correct for short-term. On the higher side, 11,630-11,650 is a strong resistance zone tested twice.  Any close above will lead to continuous uptrend.

Technically, the negative divergences are still intact in major indicators. Stay cautious on top, as market is making highs on negative breadth, low volume, high P/E, decelerating macro economy, raising tensions on international trade tensions. 

In these neo- normal conditions, one can ride the trend one with cautious approach with trailing stop loss. The pharma and IT sectors still look promising as most of companies depend on dollar revenues and focus on them for next two quarters. - Hans Research Team