Charts signal caution alert

NSE Nifty closed lower for the third consecutive week. It is down by 0.48 per cent. The BSE Sensex declined by 0.56 per cent. The broader market indices, Nifty Midcap and Smallcap indices, were sharply lower by 2.46 per cent and 4.05 per cent, respectively. On the sectoral front, Only Nifty IT was up by 2.9 per cent, and the Private Sector Bank index advanced by 0.49 per cent. Equities continue to be in correction mode as the benchmark index, Nifty, declined and made a lower low. The index has formed a bearish engulfing candle with high volume on a weekly chart. It also formed a Shooting Star candle on Friday, showing that the undertone is strongly bearish. As of date, there are no signs of the pre-budget rally.

The Nifty is trading much below the long-term averages. It is 3.72 per cent below the 200DMA and 2.62 per cent below the 50-week average. The distance between 200DMA and the price is the highest level after the March 2023 level. The chances of mean reversion are also higher if the distance is far away. The 200EMA entered a downtrend this week. The 50DMA closed below the 200DMA and registered a Death Cross, which is a long-term bearish signal. The zone of 200DMA (23,984) and 200EMA (23,647) will act as strong resistance. The 50-week average is also placed at a similar level of 23,712. The last nine-day consolidation zone of 22,976-23,426 is the immediate support and resistance. The Nifty must close above the 23,426 for an upside move. In any case, it closes below 22,976 points; the next immediate support is at the 22,800-860 zone. The index corrected by 12.56 per cent from the all-time high and almost completed the Category-1 correction.

Before the budget, the index may not move out of the 22,800-23,600 zone. This 800-point zone is very crucial for the future direction. The General Budget will act as a trigger for the future direction out of this zone. Due to the Budget on Saturday, next week we will have six sessions. The next will be highly volatile also. The market may witness a risk-off sentiment, and the trading volumes may decline in this background. Be very careful about the position size. It is better to stay on the sidelines.

Relative Rotation Graphs (RRG) shows that there is no sector is in a position to lead the market. The Nifty Realty, Bank Nifty, Financial Services Index, and the Midcap-100 Index are inside the leading quadrant. Except for the Midcap-100 Index, the rest are showing a decline in their relative momentum.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)