Mkt course hinges on Q1 results

Last week, Nifty opened with a big negative bar and later it mostly consolidated. Nifty lost 258.65 points or 2.19 per cent. The Sensex closed with 2 per cent loss and the broader market indices also followed the benchmark indices with similar losses. Nifty Midcap100 lost 2.2 per cent and Smallcap closed with 2 per cent loss. The much broader index Nifty-500 index also lost 199.90 points or 2.07 per cent. Nifty lost 4.87 per cent from its lifetime highs. Economic factors like, IIP and Inflations numbers are not enthusiastic to the market.

As we were expecting since last one month, the Nifty almost filled the gap of May 20th. After registering the biggest fall in four years, the benchmark index is consolidating for the last four days. The Nifty made two lower lows and a lower high after its lifetime high on June 3. The interesting thing is Nifty still moving within the upward channel which is a major trend.

The intermediate is down at the channel support with lower lows and the high and minor trend is flat. Nifty made three higher lows last week, but unable to sustain above the gap area. It gained about 179 points from the July 9 lows on Friday, but unable to sustain at higher levels and fell 50 per cent in last two hours of trading with higher volumes.

On Wednesday, Nifty breached 100 DMA but reclaimed it, holding it for the last two days. Otherwise, it is trading below all other short and medium-term moving average. The Bollinger Bands and the 20DMA are turning down. The bands narrowed for 14 trading sessions and are expanding for the last five trading sessions. This price structure indicates that more downside is possible in the near future as long as Nifty trades below its 20 DMA (11739).

As the trend is down, the major indicator RSI reached to its historical support zone of 40 but moving in a downward channel on weekly and daily charts. As gap area support, I place channel support at 11440-11460 zone. This zone will act as a critical level for next week. With these evidences, Nifty may face stiff resistance at 11740 and support at 11440 levels.

Only the Stochastic Oscillator reached oversold condition and all other indicators are still showing bearish signs. The directional indicator ADX is well below the -DI, which means the trend is weak. In any case, if Nifty falls below the 11440-420 levels, the next level of support is placed at 11,300. After that, the most critical swing is placed at 11,100 levels. On the upside, there are many resistances like 11,600 and 11,695 and 11,740. Let us see how the Nifty behaves next week as earnings season began. The initial signs are not so encouraging as some industry majors has just maintained their earnings. Let us see how the index heavyweights will declare their earnings next week. Though economic data points are with negative bias, the market may sustain at higher levels. Be cautious about building aggressive long positions.