Market may consolidate for next two weeks

The market began with a positive note and sustained the momentum for three days. But, failed on Friday, it fell sharply after opening with a huge gap up. On a week on week basis, the Nifty gained 92.85 points or 0.62 per cent. The BSE Sensex rose by 0.8 per cent. Smallcaps outperformed the benchmark indices by advancing 1.4 per cent.

The Nifty Midcap-100 up by just 0.2 per cent. On the sectoral front, the Nifty IT gained 2.6 per cent, is the top gainer. The Banknifty and FinNifty gained by 0.7 and one per cent. The Nifty energy, metal and pharma indices lost by 0.1 to one per cent. Realty indices lost the most by 2.3 per cent. The Nifty formed a gravestone doji on a weekly candle. On Friday, it formed a very engulfing bar and threatened the bull's confidence on the upside. In fact, for the past five weeks, it entered consolidation and not giving any clue about the future direction. Since 16th February, when it formed lifetime high, almost every day it registered gap openings. Many of the opening levels did not sustain and closed lower.

This also resulted in premium erosions in the market, where the market makers, sellers only benefited. On Friday, it actually fell sharply by over 300 points, which is a bigger fall after 26th February. Though it breached 15,000 levels on an intraday basis, it is able to close above it. And it also breached trend line support, finally able to protect the support. It also breached 20DMA on an intraday basis but protected it at the end of the day. Friday's high 15,336 has become resistance for next week. In any case, it closes below 20DMA next week, and the immediate support placed at 14,862. And the 50DMA support is at 14,680. These are important levels for the near term.

In the medium term, 26th February low or swing low 14,467 will act as major support. Only in the case of closing below this level will the market status turn into a downtrend. On the upside, as mentioned above, today's high 15,336 and the previous lifetime high 15,431 will act as a strong resistance. During the last week, it oscillated a very narrow range of 446 points.

As mentioned last week, the selling pressure concentrated. Generally, the small-cap rally ends the bull market. The outperformance of mid and smallcap remembers the market topping scenarios. The mid and smallcap-100 indices formed an indecisive to bearish bars last week. There are only two sectors in the leading quadrant this week. All other sectors are either in weakening or lagging quadrants. Among the leading two sectors, the Auto index is near to the weakening quadrant. One more driver of the market Reliance did not sustain the four-month long-range breakout. Institutional support is as aggressive as earlier.

With Friday' fall negative momentum indicator, -DMI has moved above the +DMI is a weaker signal for the market. Interestingly, the ADX, which trend strength indicator has declined from 32.32 on a lifetime high day to 14.86, is more than 50 per cent. There is a serious negative divergence in the +DMI. This is another indication of a distribution.

In this scenario, the upside is limited, but it needs a close below 50DMA to turn bearish. Currently, 20DMA and 50DMAs are important supports. Between these two averages, we may not get the right trading opportunities. The RSI on a daily chart once again faced a resistance turning down. Watch 48-45 zone, as important support any breakdown will be a bearish signal for the market. Overall, the market is at an important juncture. It was in consolidation mode, and either side breakout will result in a bigger move. It may consolidate for two weeks, as FY 2021 results expecting in the next three weeks time. The stock-specific action will continue for some more time. It better avoid trade indices on a positional basis as the gaps hurting the positions.

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