Market course hinges on Q2 financial results

The Indian stock market fell sharply and lost about 2.93 per cent last week. 25 basis points rate in the RBI monetary policy did not cheer the market. A series of negative news flow dampened the sentiment.

Nifty lost 337.65 points last week. Another benchmark index BSE Sensex also lost about 2.9 per cent. The broader market index Nifty 500 fell by 3.24 per cent.

Nifty midcap 100 closed negative by 4.3 per cent and the Small-cap index fell by 4.7 per cent. The overall market breadth is negative and FIIs continue to sell the Indian equities. Global markets also fell sharply as the trade war fears are growing.

Technically, Nifty closed below the long term average 200DMA and added two distribution days last week. Before breaching the 200DMA, it first breached the 100DMA on Tuesday.

Currently, it closed below the short term moving average of 20DMA, but, 0.6 per cent above the 5DMA.

Interestingly the Nifty retraced more than 50 per cent of the historical surge of 1000 points. It fell 536 points from October 23 high of 11,695. It also closed below the August 9 upswing.

It almost tested the consolidation breakout level. In any case, if Nifty falls below this breakout level or 11140-181 zone and enters into a consolidation zone again means, the euphoria of the corporate tax cut has faded out.

The leading sectoral index Nifty Bank actually corrected more than 75 per cent of 4074 points move in two days. It also closed below the all short and long moving averages.

The PSU bank index is actually made a new 52-week low. The PvtBank index is given up 80 per cent of the gains. The Smallcap index has given up 100 per cent of the gains.

With this kind of retracements, there are very bleak chances of bullish reversal from here. Any bounce is above the 11500-600 zone can be a treated as a bullish reversal.

As we discussed in the last column, the failure break above the confluence of channels is not a good sign for the market.

Even the indicators are suggesting more weakness in the market in the near future. The leading indicator RSI once again reached below 50 zone. The MACD line is about to cross under the signal line and the histogram is near to the zero.

The Stochastic oscillator is also indicating the further down move. Now the big question is whether 50 DMA level 11092 and 61.8 retracement of the level of the recent upsurge 11061 will hold or not.

If Nifty falls below the 11,060 level, the next level support is placed at 10890. Below this, it will test the prior lows.

On the upside, the resistances are placed at 11285, 11363, 11426 and 11490. After crossing all these levels, Nifty will get confidence to move upside. Watch these levels for the next few days.

The earnings season is to begin this week. We need to watch closely how many corporates will benefit from the recent corporate tax. The measure of impact is very important for this season.

It is important to watch the topline growth to measure the slowdown effect and bottom line to check positive impact of the corporate tax cut. Especially the Nifty companies' financial performance is very crucial for the market move.

As all other economic data points are not encouraging, the financial results must be a sentiment booster for the market. Next week onwards, stock specific market action will rule the market.

(The author is a financial journalist and technical

analyst. He can be reached at tbchary@gmail.com)