Weekly charts suggest positive momentum
The equities rebounded on the weekend and broke the 3-day losing streak. The Nifty gained by 393.80 points or 1.59 per cent. BSE Sensex also gained by 1.59 per cent. The broader market was weak, as the Midcap-100 and Smallcap-100 declined by 0.40 per cent, and 0.98 per cent. On the sectoral front, the Nifty Auto is the top gainer, with a 1.51 per cent increase, followed by IT with a 1.36 per cent rise. The Banknifty and FinNifty advanced by 1.36 per cent and 1.19 per cent, respectively. On the flip side, the Nifty Pharma is down by 1.69 per cent, and Metal fell by 1.30 per cent. The Energy and FMCG declined by 0.39 per cent and 0.19 per cent, respectively. The market breadth is mostly negative. The India VIX is down by 9.33 per cent to 13.67. The FIIs bought Rs3,897.21 crores, and the DIIs bought Rs56,786.30 crores worth of equities in this month.
The Nifty has formed strong bull candles on the weekly and daily time frames. Before closing near the pivot, the index oscillated around the 20 DMA. A massive spurt in volumes on Friday indicates renewed buying support. The FIIs bought Rs.7940.70 crore worth of equities on Friday, which supports the volume spurt. The Nifty is still in the consolidation range, but closing near the pivot, indicates a probable breakout. The previous week’s low of 24473, which formed on a negative(Israel-Iran War beginning) news. All the recent lows are formed on a negative news flow. The market discounted the war implications.
During the consolidation, all the big bull candles were followed by a series of bearish candles. If the index closes above 24222 decisively, with a volume support, it will result in a massive rally. As stated earlier, the undertone is strongly bullish. The worry is... last week’s weakness in the broader market. The midcap and smallcaps underperformed, showing poor relative strength and loss of momentum.
On a weekly chart, the 10-week average is in a strong uptrend. The RSI is back into the above 60 zone, which is an indication of a strong uptrend. Interestingly, this trend strength is not reflected in the Directional Movement Index. The ADX, +DMI and -DMIs are declining. The daily ADX is also declining. This is an interesting technical development to watch.
The India VIX is back to the lower range of 13.67. This volatility index has an inverse relationship with the benchmark index. In the recent past, whenever the VIX declines below 13, it tends to decline from the highs. For the last two weeks, the global markets have also been weak and have failed to sustain the opening gains. The crude oil prices will influence the equity markets. The closure of the Hormuz Strait will impact the oil supplies. Keep an eye on geopolitical events and crude oil movements that can affect the equity market.
For a decisive uptrend, the Bulls must close above the 24222 - 307 zone of resistance. If it sustains above this zone for a week, we will test the new high. The new target is at 26800. In any case, the index declines below the 10-week average of 24570, will be negative and will resume the downside. It is better to stay with a positive bias as long as it is in the consolidation range, as the internal strength is strong. The sector rotation is perfectly going on as the traditional defensives are in the limelight. The India Defence stocks are in focus too. As the RBI pushes liquidity in the market, the Banks and financials are also in focus.
(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)