As long as Nifty trades above 25000, avoid short positions. Stay with a cautiously positive bias

TheNifty has ended a two-week winning streak and consolidated mainly in the range. After trading in a 337-point range, the Nifty closed down by 176.80 points or 0.69 per cent. The BSE Sensex too declined by 0.74 per cent. The Broader market indices outperformed as the Midcap-100 is up by 0.49 per cent, and Small-cap-100 is advanced by 0.30 per cent. On the sectoral front, the Nifty Realty is up by 0.91 per cent. Pharma and IT are up by 0.81 per cent and 0.80 per cent, respectively. On the flipside, the Nifty Metal is down by 0.45 per cent, and Auto declined by 0.10 per cent. The India VIX is down by 0.59 per cent to 12.32. FIIs sold Rs5,773.06 crore and DIIs bought Rs4,111.98 crore in the first week of this month.

As we suspected last week, the Nifty entered into a counter-trend consolidation. During the last week, it formed all lower low and lower high candles. The volumes declined, which is a characteristic pattern. The index traded and remains in the well-defined range 25000-25650. As the index formed an open-high candle on a weekly time frame, expect more consolidation and range-bound trade, which may not develop a decisive directional bias.

The earnings season begins next week; expect more stock-specific action and sector rotation. The earnings may give any positive surprises, as revenues may hit in the first quarter.

The Nifty must take out the 25650-670 zone of resistance to resume the uptrend. The current counter-trend consolidation is just five days old and may continue for another three days. In any case, the consolidation registers a breakout, expect a trending move towards the new all-high. On the flipside, the Nifty must protect the 24891, which is 10-week average, which is the nearest strong support. Before that, the 20DMA of 25165 may act as a support.

Because of the ongoing consolidation, the momentum is waning. The MACD histogram shows a significant decline in the momentum. The RSI is on the 60 support on the weekly and daily time frames. There are no divergencies visible on any time frame. The Mansfield Relative Strength line is below the zero line and shows an underperformance compared to the broader market.

The Relative Rotation Graphs (RRG) show that all the sectoral indices are losing momentum. The PSU Bank and Midcap-100 indices were in the leading quadrant and will outperform the broader market compared to the Nifty-500 index. The IT, Energy, Media, Realty, and Auto indices are in the improving quadrant. If they improve the relative strength and momentum, they may enter the leading quadrant in the near future. Focus on IT sector earnings. The other sectors are losing their momentum.

Overall, the market may consolidate further during the next week. The earnings are crucial for a trending move. Any disappointments in the leading companies may lead to the breakdown. As long as Nifty trades above 25000, avoid short positions. Stay with a cautiously positive bias.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)