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Highlights

The Indian stock market faced a stiff resistance after opened the week with a gap up opening

The Indian stock market faced a stiff resistance after opened the week with a gap up opening. It traded in sideways for the first three days and witnessed a sharp decline on Thursday and erased the gains of the previous week. Finally, the Nifty lost 151.75 points or 1.27 per cent during the last week. The BSE Sensex also declined by 1.3 per cent.

The broader market outperformed as the Nifty Midcap-100, and Smallcap-100 lost only 1.8 per cent and 0.6 per cent respectively. Barring Metal sector index all other sectoral indices closed lower. Nifty Media lost 6.8 per cent, and PSU Bank index declined by 4.7 per cent. The FIIs bought Rs1,186.23 crores and the DIIs sold Rs5217.47 crores worth of equities.

The Nifty once again witnessed a sharp sell-off and repeated the August 31 bar at the swing high. On Thursday, the fall has given caution to the traders. This time, the fall was not because of external news impact. The benchmark index added a distribution day and the market breadth was negative. It filled one gap of October 8.

As mentioned earlier in the newsletter, there is suspicious activity is going on. Many of the bearish classical and candlestick patterns failed. On Friday, the Nifty rose by over 80 points, but the Open Interest in the futures came down by 7.7 per cent, which indicates long unwinding happened in the pullback. It reacted from a very critical level.

On a weekly line chart, it is quite evident that the earlier supports of Oct 2018 and Aug 2019 have become resistance now. Interestingly, this trendline gave confirmation to the March fall. If we consider 12,025 is a swing high, there is a negative divergence in RSI on Weekly chart. You can see the impact of previous divergences on a weekly line chart.

The index is facing resistance after retracing 90 per cent fall from the January highs. This retracement consumed more than 300 per cent time of the fall. As the stock-specific activity and the sector rotation is quite visible, It is difficult to trade the benchmark index with a higher conviction. Even the volume profile suggests that the 11,900-12,025 zone will act as strong resistance for now. At the same time, the low of 10,790 on September 24 is short support.

It may spend a lot of time in the zone of 10,790-12,025 area. Unless these two levels are broken with a volume and follow-through day, we can't be neither bullish nor bearish. It will consolidate within the zone for at least three weeks.

The Elder Impulse system showing that the market has entered into a neutral zone. The MACD histogram significantly declined on weekly and daily charts. The ADX line is improving even after the Nifty went near to the previous lifetime high.

This shows the weakness in the trend. The red HeikenAshi candle without upper shadow on a daily chart indicates the change in trend direction. As earlier, post-August 31 fall, the witnessed a pullback and formed an inside bar. The inside bar trading rule says that, unless the big bar range broke out, better in sidelines.

I have already mentioned many fundamental factors, which derailed market movement. The market drivers, Reliance, IT and pharma sectors slowed down and consolidated. The private sector banks and metal sectors led the markets last week.

As I mentioned above, better avoid trading in the benchmark index and focus on the stock-specific activity. The IT, pharma, metals and private sectors banks are looking good currently. The cement stocks are also making a good structure technically and watch breakouts selectively.

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

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