Markets likely to move sideways

It was a volatile market last week as bourses slipped into red in first three days before closing the trading week with one per cent upswing due to short covering on Thursday derivatives settlement and Budget on Friday. The BSE Sensex closed at 36,469, up by 444 points or 1.2 per cent, while the Nifty ended at 10,893, up by 113 points or 1.1 per cent. But the midcap and smallcap indices closed marginally lower by 0.1 per cent and 0.3 per cent respectively. 

On Budget day, a 170-point volatility has not taken out the previous resistances and eventually formed a bearish candle, shooting star on a daily chart. Despite the heavyweights like Reliance, TCS and Infosys, the index was unable to clear the resistance at 10,985. Since December 19, Nifty made three parallel top at 10,985 and trading within range of October 2018 levels.

On January 29, Nifty made a lower low by violating the 4th and 14th Jan lows. This illustrates that market structure is damaged, but the bearish confirmations available only if it is unable to take out the resistance and form a new lower high, which is also signal of downward trend. 

If Nifty clears the 10,985 level and sustains that level for two successive days, then it will reverse the trend and go up. In such case, the market may witness a huge buying interest and faster retracement towards upside with a target of 11,080 and then 11,385. In the second scenario, if Nifty falls below the last week’s low of 10,583, it will retest the previous significant low 10,004.  

Nifty once closed above 200 DMA and 50 DMA. It also touched the upper band in range indicator, Bollinger Bands, which suggests that the upside move is limited. The Ascending Triangle’s apex is hinting that the market may tear the sideways movement in the next one to two weeks.

Either side breakout will lead to sharper move. So, investors are advised to wait till it clears the resistance of 10,985 for long positions and 10,675 for short positions. (The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)

By Thivoti Brahmachary