Consolidation may extend further

The equity markets were consolidated during the last week. NSE Nifty traded in the 390 points range before settling with 171.4 points or a 1.06 per cent loss. BSE Sensex declined by 1.3 per cent. The broader indices performed mixed as the Nifty Midcap-100 by 1.3 per cent and Smallcap-100 index down by 0.1 per cent. On the sectoral front, Nifty Pharma was up by 2.3 per cent, and Realty advanced by 2.2 per cent. The Nifty IT declined by 6.3 per cent. FIIs sold Rs10,459.13 crore during this month. The DIIs bought Rs7,367.04 crore.

The domestic benchmark indices consolidated after an impulse move previous. As we stated, the consolidation is within the small range. The Nifty has formed an inside bar, closed below the opening level. It is also called a Bearish Harami, which shows an indecisiveness with a weightage towards the bearish. Out of five days, the Nifty oscillated on the 50-Day Moving Average, and finally, it closed just above it. Still, the 50DMA is in a downtrend. The MACD line is also hovering around zero for the whole week. On a weekly basis, the trend has not changed. A notable development is that the RSI is moved down and forms a minor swing high. As earlier stated, the weekly RSI has moved above the 48-50 zone. Otherwise, the bulls may not have a grip on the market. The weekly chart suggests that the consolidation may extend for another week. The consolidation may go beyond the 16300-15800 zone. This five-hundred-point zone is crucial for next week. Either side breakout with a strong move may result in an impulsive trend. For a medium-term outlook, the Nifty has crossed 16794 (which is the previous month's high) to negate the bearishness in the market.

On a daily chart, the Nifty is moving with a rhythm in price action. Within the major downtrend, it formed intermediate downward channels. Again within the intermediate channels, there are two counter-trend channels. In the latest counter-trend consolidation, the index has taken support from the rising trend line and bounced. It closed near the flag resistance. With the late afternoon recovery, the Nifty has formed a green candle but failed to close above the previous day's high. It filled the two gaps of last week.

The VIX is down to 17.60, which may lead to some more upside moves. As the Nifty closed near the resistance level, it may test the 16300 zone, as stated above. Here is the question of how long it can sustain.

The rupee weakened to a new record low of 80.21, against the upside projection of 81.50 - 82. It has formed a Rounding Bottom pattern on the Dollar-Rupee chart. The Dollar Index hit a fresh 20-year high of 109.29, against our upside projection of 120 based on the breakout from its 7-year range. These are fundamentally negative for the equity markets and have inverse relationships. Even though the Nifty may bounce higher with various technical factors, it will be a Herculean task to sustain at the higher levels.

The market is in lacks leading sectors and leading stocks. Only four sectors are in the leading quadrant and have begun to lose momentum. Only 15 of Nifty 50 stocks are in the leading quadrant, of which four are losing their momentum. The market required a solid trending move with a higher volume in these conditions. Otherwise, it may lead to bear domination any time from now. As the global markets closed strongly, the equities may open strongly. Wait for an hourly closing to take a decision. If the Nifty sustains above the first hour's high, we may get some long opportunities. Otherwise, neutral bearish strategies will work.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)