Charts indicate limited downside probability

After a volatile and eventful week, the stock market recovered at the weekend and closed positively. The benchmark index Nifty gained 249.70 points or 1.42 per cent. The BSE Sensex is up by 2.6 per cent. The broader market indices Nifty Midcap-100 is up by 0.5 per cent, and Smallcap-100 is also advanced by 1.9 per cent. On the sectoral front, the Nifty FMCG and IT were the top gainers with 3.5 per cent and 2.8 per cent. The Metal and Energy indices were down by 7.6 per cent and 6.3 per cent. Though the market closed positively, the breadth was negative during the week. In the last month, FIIs sold Rs41,464.73 crore and the DIIs bought Rs33,41.85 crore. In the last three sessions, FIIs sold another Rs2212.58 crore. Post Budget, the volatility index, India VIX, is down by 16.87 per cent to 14.40.

The eventful week ended on a positive note. NSE Nifty traded in a 618 points range on the Budget day, and the next two days' range was limited to the Budget day's range. The price action is also limited to below 20DMA. On Budget day, it almost moved near to the long-term average of 200DMA. For next week, the 17898-973 is crucial for an upside move. At the same time, the 17353--297 zone will be a crucial support. The last two days of price are limited within the above zone. Above this zone, the 50DMA, 18187, will be a major resistance for now.

As the derivatives data shows, the fall is limited. The monthly PCR is at 1.18, and the weekly PCR is at less than 0.60, which means traders took positions by selling puts. At the same time, the volume also receded after the event.

The 20-week average acted as a resistance. Earlier, it acted as a support during the inside action. It is important to cross the 20-week average of 17813, and a close above the previous week's high of 17972 is crucial. Interestingly, the Nifty retraced 61.8 per cent of the prior downswing, which is at 17877. There is a confluence of resistances at the 17887 to 17972 zone. Unless it clears decisively, we can't be aggressively bullish for now. For a strong bullish bias, NSE Nifty has close above 18200, which is a prior high. The Anchored VWAP resistance is also placed at the same level at 18187.

The RSI is still below the 50 zone. However, the MACD histogram shows an improvement in bullish momentum because of the last two days of positive close. The Elder impulse system has formed a bullish bar. We can say that the probability of a downside is limited, but the upside potential requires strong closings above the confluences of resistance. It is advised to keep the leveraged positions at a low. The market may see sideways action for the next two days before taking a directional bias.

The Nifty FMCG and IT indices are in a relatively better position in the current market. These two sectors are looking promising as their momentum, and relative strength is stronger compared to the broader market. Some of the leading stocks registered breakouts last week, and some more are near the Stage-1 Flat base breakouts. Be positive in these two sectors.

(The author is Chief Mentor,

Indus School of Technical

Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)