Next 4 sessions crucial for market

Inflation and interest rate hike fears rattled the world markets last week. The Indian markets also declined to pre-budget level once again. The NSE Nifty declined by 161.50 points at 0.94 per cent to 17,374.75 points. The BSE Sensex down by 0.8 per cent to 58,152.92 points. The broader indices Midcap-100 and Smallcap-100 indices fell by 2.3 per cent and 4.5 per cent, respectively. Only Nifty Metal index ended with 3.3 per cent positive and all other sectoral indices in the red. The Nifty Realty went down by 2.4 per cent, and FMCG fell by 2.2 per cent were the major decliners. This month's last seven trading sessions, FIIs sold Rs9,712.6 crore, and the DIIs bought Rs5,837.25 crores. The market breadth was mostly positive. The India VIX declined by 1.15 per cent last week.

The benchmark index Nifty mostly consolidated within the 18-25 the January range for the past 11 trading sessions. It oscillated around 30 weekly averages and formed a long-legged Doji candle. Technically, the index has formed lower swing high weekly chart and minor lower swings on a daily chart. At the same time, the index is below 20 and 50DMAs with six distribution days in its account. The 20DMA is in a downtrend. By closing below the previous day low, it has given a strong bearish signal. For the last four weeks, Nifty sustaining below the 20 Weekly average acts as a strong resistance. Importantly, the 20WMA has entered into a downtrend, indicating long-term weakness.

The daily RSI is below the 50 and MACD line sustaining below the signal and zero lines. On Friday, the histogram showed an increase in negative momentum. Even though the Nifty has formed a higher bottom, the price is near the continuation pattern's support. After a massive rally from 16410 to 18350 in 21 days, Nifty consolidated in this range for the last 17 sessions currently at 50 per cent retracement level of this huge swing. Time-wise, the next four days are crucial for the market. It has either breakout of 17640 decisively or breakdown below 17000 levels. Within this 600 points range, the trader will not get directional trades. The index has been in a counter-trend for the last 16 weeks, which is longer than February-May 2021, consolidation, which lasted for 14 weeks. The current consolidation is wider too.

On the positive side, Nifty has improved its relative strength compared to the Nifty 500. And Mid and Smallcap indices. In any case, the Nifty outperformance continues for the next two weeks, and the large-cap stocks will lead the market rally. When the Nifty relatively outperforms the broader markets, the focus will shift to large-caps or mostly Nifty-50 stocks. In Relative Rotation Graphs (RRG), the Nifty has rolled into the improving quadrant.

For next week, the 17000-17640 range is a crucial one to break. As mentioned above, within this range, avoid aggressive position sizing. It is better to apply neutral strategies. We may see some volatile moves in this range. Auto, Metal stock will be in focus next week.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)