Market momentum enters negative zone

With unfavourable General Budget stock markets drifted down post-budget speech on Friday. The 'sell-off' in the market forced Nifty to close below the 4 days low.

The stock market did not like the proposal to increase the 'public holding' in listed companies. The much expected STT reduction did not happen but rationalised the STT on options trading.

Importantly, The Budget is lacking in vision to boost the economy into a growth path. The interim Budget presented in February this had more proposals than this General Budget. The Union Budget did not bring delight to the investors.

As soon as the Finance Minister's budget speech concluded, the benchmark indices collapsed to the last week's lowest point. The Nifty fell by 159 points or 1.32 per cent.

On a weekly basis, Nifty gained just 0.2 per cent, and the Sensex closed with a 0.3 per cent gain. The broader markets were the worst performers last week. Nifty Midcap-100 lost 0.7 per cent and Smallcap-100 closed flat.

The much broader index Nifty-500 index also closed on a flat note. Metal and IT sectors were the worst performers with 4.3 per cent and 2.4 per cent respectively.

Nifty formed a shooting star candle on a weekly chart with huge volumes signalling the profit booking. It also adds the distribution day. Interestingly, the Nifty corrected 50 per cent of the pre-budget rally from June 19th in just one day.

With this fall Nifty closed below the 20 DMA. Even though the price is moving upside since last 12 trading session the Bollinger Bands were narrowed further.

As price closed below the 20 DMA which is a neckline, the immediate support could the 11647. This level was tested several times in the recent past. As long as this 11600-11647 zone holds, the market may try the bulls will have a chance to bounce back.

Last week high 11982 will act as a critical resistance. On a weekly chart MACD histogram is just below the zero line which shows that the momentum entered into a negative zone and any further deterioration will lead to a further correction in the market.

The RSI was unable to cross the 60 levels and came back to the neutral zone. Interestingly it has broken the bearish symmetrical triangle which a PM worrying factor for the market.

The Directional movement indicator narrowed with -DI is above the ADX. This indicates the recent uptrend is in danger.

The advance declines ratio negative once again. More than 100 stocks hit the 52-week low on Friday. Most important thing is that there are at least 6 distribution days in the last 30 trading session.

Even though this distribution level is below the average, except Friday, the market is not getting any huge buying support.

As near to the 11600 zone, supply is minimal, the market is able to sustain above the level. But Friday's action is indicating that next session will depict the critical market direction.

As it is closed to the lowest point of the week, and the support, the Friday low is the key to the market. If it is able to protect 11800-11765 zone there is a chance of the market bouncing back to the 12000 zone again but, the chances are very minimal.

In any case, Nifty falls below the 11765 levels, this time it will fill the gap of May 20th.

So, watch the 11765 on the bottom and 11990 on the top which will be the crucial zone for the market to decide further trends.

(The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)