Markets likely to remain volatile

Equity markets are unable to break out upside after multiple efforts breach the resistance in previous two months. Contrary to the market participants expectations, Nifty failed to close above December high of 10,985 level. Further, it gave up its previous week gains to close below 10,800 level. The BSE Sensex was down by 360 points last week and Nifty closed at 10,780 with the loss of 127 points.

The Nifty mid-cap index fell by 2.8 per cent and small-cap index was down by 3.3 per cent in the previous week. IT, pharma and energy stocks were able to close in positive territory and auto, media, metal, capital goods, cement sectors were the worst performers and were major draggers on the index. 

Volatility may persist as January derivatives settlement is set for Thursday and Union Budget is scheduled to be presented on Friday. Markets are oscillating between the October 2018 high and low due to lack of buying interest and positive triggers. 

Technically, the Nifty formed a bear candle on daily and weekly charts, closing at the key support level. As we indicated recently, the Nifty may get a decisive direction very soon. The range indicator suggests that breakout may be downside as the Nifty closed below 200 DMA and 20 DMA.

The medium-term indicator 50 DMA is again holding for a fourth time in last one month. The Nifty closed marginally higher than its 50-DMA. The price structure is forming bullish pattern, Ascending Triangle, but this pattern may lead to a sharp downside move if there is any downside breakout. 

If the Nifty closes below 10,750 -10,700 zone on a closing basis, market can turn bearish and fall up to 10,450. However, any big push or positive triggers in the interim budget may turn the market into a buying zone.

The leading indicators, RSI and MACD, are suggesting bearish moves next week. As many as 15 stocks in Nifty are trading at 52-week lows and less than 10 stocks are near to their 52-week highs. Markets are likely to remain highly volatile this week. (The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)

By Thoviti Brahmachary