Markets still in consolidation mode

After a 544 point volatility, Nifty lost 95 points or 0.85 per cent in August. BankNifty lost 1,451 points after 2,308 point volatility. On a week on a week basis, Nifty gained 1.9 per cent and Sensex rose by 1.7 per cent. Midcap and Smallcap rallied 1.9 and 3.7 per cent respectively.

With a series of announcements last week propelled the markets to recover and record weekly gain after 3 months of fall. FIIs sold Rs. 14,828.76 crores worth of shares in August.

Technically, Nifty remained in the consolidation mode. It traded between 11150-10800 range. After breaking a bearish flag, it retested the Flag support line. Now, there early signs indicating it is in the formation of an inverted head and shoulder pattern, which gives some hopes.

It is very early to come to the conclusion that the market will turn bullish. So long as it does not move out of the 11140-11181 zone, watch the market behaviour closely. The Nifty is oscillating between 8 and 13 EMA since last one month.

The interesting and most rare thing is that Nifty formed almost a similar candle in monthly, weekly and daily charts. This unique formation rarely occurs on any chart.

It looks like Hammer pattern on the bottom with higher volumes on all time frames. On the weekly and daily charts, the trend is an accumulation, but, on a monthly chart, it is a clear distribution. The Finance Minister's announcements on two consecutive weekends propelled the volumes.

There are positive signs like the hammer, but volumes may not be the triggers as there are many other fundamental factors dampening the sentiment. Let us examine the scenarios. The immediate questions are that a) Is the August consolidation is a bottom formation? b) Will the last week recovery continue further? The long and intermediate trends are still clearly in downtrend.

The minor or short term trend is in consolidation mode, neither bearish nor bullish in nature. As long as this consolidation continues on either side, better avoid any kind of conclusion or opinion.

Wait till breakout or a breakdown to happen for a confirmation of the continuation of a prior trend or a reversal to an intermediate uptrend. In any case, Nifty decisively closes above the daily chart.

This means, in the next few weeks, any move towards this zone is considered as pullback only. But, a close below 10,980 or a prior bar low means it is resuming its prior downtrend. As the prices are consolidating and narrowing for the last month, it indicates that there will be an impulsive move in the coming days. The price is now above the neckline or 20DMA.

This means the upper Bollinger (11,165) is the target and is at similar levels of recent parallel highs. So, there are multiple resistances in11140-11181 zone. It is not an easy task to overcome these levels. If you want to be bullish about the market, let it overcome these resistances first, and buying interest or follow through days must support that.

Now, let us examine some fundamental factors that will have a definitive influence on the markets. As promised last Friday, the Finance Minister announced public sector mergers. There are multiple analyses, pointing out intentions behind the move.

And there are apprehensions about these mergers as there are large-scale banking employees protests and analysts foresee it is not smooth sailing. Further, the GDP is worse in 25 quarters. It is not a slowdown.There is something wrong with the economy. The slowdown is increasing.

The consumption, which is the backbone of the economy, is almost minimal. Manufacturing growth is almost minimal. Auto sales ar once again at a deep decline in August. In this scenario, what kind of fundamental factors will improve investor sentiment? And there are rating downgrades for the companies and for economic growth by global agencies.

There are fears about the recession. These are the looming factors which will have a dominant influence on the market. Wait for the market reaction on Tuesday for the near term trend.

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