Nifty may continue in positive mode for next 3 months

Finally, the five-week winning streak ended. The week ended on a negative note, along with the global markets. The benchmark index closed at 17,532 with a 1.8 per cent loss. The BSE Sensex lost 2.2 per cent. The broader indices Nifty Midcap-100 and Smallcap-100 are up by 0.8 per cent and 0.6 per cent, respectively. The PSU Bank index is the top gainer in the week with a 6.1 per cent gain. Nifty Energy up by 5.9 per cent. The Metal and Pharma indices also advanced by 2.6 per cent and 2.1 per cent during the last week.

The IT index was the top loser by a 6.3 per cent decline. Nifty Financial and Bank Nifty lost a 2.5 per cent decline. During the last month, FIIs purchased Rs 913.77 crore, and DIIs bought Rs5,948.85 crore worth of equities. The market breadth is mostly 1:1.

The Nifty formed a big bearish candle, Dark Cloud Cover, on a weekly chart and indicates that the market has formed an intermediate or a short-term top at 17944. We cautioned about the over brightness and many other technical parameters warned us about the possible decline in the market. It closed below the 20DMA. It also closed below the upward channel for the second day. Historically the most bullish month October has begun with an indecisive Doji candle on Friday.

It recovered 80 points from the day's low and closed near to the day's high. By closing below the six-day low, the index has given a weaker signal. The negative divergence in RSI got the confirmation for the weaker market implications. The immediate support for the index is at 23.6 retracement level of the recent upswing is at 17354 and the minor low of 17326. If the Nifty fails to bounce from this zone, it will test the 17,000 points.

Historically, the market has been bullish in the October quarter, and only once in 2013, it made top. The current quarter most optimistic month for consumer demand. The market generally moves with the positive sentiment. As I earlier project, the target for the next three months is intact at 18350. The market turns bearish only in case of a decline below the 16900. The Nifty may open positively on Monday as the most bearish in the recent time occurred. In any case, the Nifty moves above 17889. The highest is that the Nifty will cross 18000. before testing the projected target of 18350, it may undergo a series of high swing days in the short term.

Barring Bank nifty and Metal indices, all the sectoral indices are still in the rally mode. These two indices are under pressure as there is more distribution day count. The Nifty currently has three distribution day count. Any increase in the distribution will change the market structure into an uptrend under pressure.

The technical structure of the Nifty has not changed much. It declined just 2.5 per cent from the recent lifetime high. It did not form lower high and lower low to give a trend reversal signal. The decline below the 20DMA after July is a concern but not a very big negative. The contracting Bollinger bands are indicating that the market may undergo a sideways action or a consolidation in the near term. Look for RSI (58.45) behaviour in the 45-50 zone, where the market took the support for several times in the past.

In any case, the Nifty opens on a positive note and closes above the prior day high of 17557, and the market turns positive for at next two days. The next weekly close below 17326 is a short term negative for the market. In a nutshell, the market is moving to an expected level. Unless a global crisis impacts the momentum, it will continue to be in a positive environment for the next three months. As long as 17326 is protected, the market may move in sideways. 17950-18000 will act as immediate resistance. The Auto, FMCG, PSU stocks may outperform in the near term.

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