Nifty hovering in non-directional mode

Thebenchmark index continues to decline for the third consecutive week, as the selling pressure in large caps intensified. The Nifty declined by 181.45 points or 0.75 per cent. The BSE Sensex also declined by 0.90 per cent. The broader market indices, Midcap-100 and Smallcap-100, outperformed as they gained by 0.79 per cent and 1.05 per cent, respectively. On the sectoral front, the Nifty Media index is the top gainer with 3.92 per cent, followed by Realty with 3.84 per cent. The Auto, Pharma, and Consumer Durable indices also registered decent gains. On the flipside, the IT index declined by 1.46 per cent, and FinNifty declined by 1.11 per cent. The Banknifty also slipped by 0.83 per cent. The India VIX declined by 3.60 per cent to 11.39. The FIIs sold Rs16,955.75 crore and the DIIs bought Rs21,893.52 crore worth of equities in this month.

The Nifty has formed a Three Black Crows on a weekly chart, as it declined for three consecutive weeks, which is the most bearish sign. Earlier, when the downtrend began, the index formed four consecutive bearish candles. The volume on the weekly and daily time frames was higher than the previous bar. Currently, the Nifty is holding five distribution days. As it closed below the 50 DMA and 10-week average, the market status changed to an uptrend under pressure. Importantly, the Nifty violated the rising trendline support drawn from the 9th May. With this, it broke the upward channel. As suspected earlier, the index closed below the psychological 25000 support.

The Nifty also tested the 61.8 per cent retracement level (24930) of the recent upswing. The 50EMA is at 24932. In any case, if the index closes below this crucial support, it will witness a further intensified selling pressure. The middle point of the prior six-week consolidation is at 24780, which may act as final support. The 23.6 per cent retracement level of the uptrend from April 7 is at 24743. Expect a bounce from this zone before taking a directional bias. By the time the index may enter into an extreme oversold condition. If the index violates and sustains below 24743, the bears will dominate the market, and can test the lower range of the consolidation zone, which is at 24494-462.

The weekly RSI declined into the bullish zone. The daily RSI is at 43.07, closed below the prior low, and near the bearish zone. The daily MACD line is also near the zero line. Even though the price is in an uptrend, these indicators have developed a negative divergence. The index is also below the Anchored VWAP support. The KST and the Stochastic RSI have been bearish. The Elder impulse system has formed a series of bearish bars.

As the Nifty is trading below the key levels, it is better to be selective on stock selection. Reaction to the big boys, Reliance, HDFC Bank, and ICICI Bank earnings, is crucial for next week. Expect a technical bounce from oversold conditions on a lower timeframe. Watch the 24930 on a closing basis, and then the 24730.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)