Markets likely to see stock-specific action

Indian stock market traded in a range for the consecutive third week. Nifty lost just 19.15 point or 0.20 per cent last week. The BSE Sensex also lost marginally by 0.3 per cent.

The broader indices Nifty Midcap and Small indices advanced by 1.7 per cent and 3.5 per cent respectively.

On the sectoral front, Metal and Realty indices advanced by 3.2 per cent and 1. 2 per cent respectively. The media index lost 3 per cent and the PSU Bank index declined by 1.7 per cent.

Nifty entered a fresh consolidation in the last week.

After a breakout of 26 trading sessions and 327 points range, the Nifty now shifted to 175 points range above the prior consolidation zone for the past 12 trading sessions.

Structure wise, there were no significant weakness visible in the benchmark index, as it has not made even a minor lower low. At the same time, bullish strength in the index is clearly waning.

As discussed in earlier columns, the momentum is not as aggressive as during the September and October months. On the weekly chart, it made another bearish - Hanging man and it formed a bearish engulfing.

The last week's doji got a confirmation with this formation. In the last three weeks, Nifty formed parallel tops. The bulls are struggling to take market further upside, but on every rise, selling pressure is building up.

It is very difficult in a scenario of buy on dips, sell on rallies kind market. Two distribution days were added last week, and one expired. Currently with five distribution days, the addition of distribution days is not a good sign for the market.

Pattern wise, its also in formation of rising wedge, which is a bearish structure. Interestingly the pattern breakdown level and the 12-day consolidation zone's support are at the same level in the background, 12118 is critical support for the market.

If it closes below this level, the minor trend turns into a bearish. The negative divergence in all major indicators still exists in all time frames.

On the Nifty, daily chart price has been making higher highs and at the same time the +DMI, green line, indicate the direction of the trend-making lower highs.

This indicates upside momentum is weakening as evidenced by the divergence in higher highs on prices and corresponding lower highs on +DMI.

At the same time, ADX is also diverging from higher highs in price as it is making lower highs. This is indicative of waning strength in the trend. The last peak is, in fact, well below the threshold level of 25 indicating serious loss of trend strength.

Technically, the market's downside potential is greater than the upside. Even if the market's moves up, it may be limit to two or three days.

Above 12293, the upside target is at 12350-12400. But, closing below 12118 means the downside risk is sharper and bigger. The downside targets are at 11850 and below.

However, geopolitical conditions are once again back in the driving seat. The Iranian senior commander was killed by American forces leading to spike in Crude oil prices.

Any kind of violent retaliation from Iran will disrupt the energy supplies. This may lead to a spike in oil import-dependent countries like India. Apart from this global risk, the earnings season is beginning this week.

Expect stock-specific action from now onwards. If earnings are encouraging, we can assume that the recent lifetime is an intermediate top.

(The author is a financial journalist and technical analyst. He can be reached at [email protected])