Market in unpredictable mode
Best strategy is to wait until the decisive breakout happens
The Indian stock market has not moved anywhere during the last week. It closed at an opening level after volatile sessions. The week opened at 14,837.70 and closed almost at the same level of 14,834.85. Compared to last week's close, it lost 32.50 points or 0.21 per cent. The BSE Sensex lost 0.9 per cent. Interestingly, the broader market outperformed during the week. The Midcap-100 and Smallcap-100 indices gained by 1.4 per cent and 3.3 per cent respectively. The out-performance of the Metal index continued with another 6.6 per cent gain. IT index up by 5.3 per cent, and the Pharma advanced by 5 per cent. The Bank nifty declined by 4.16 per cent, and FinNifty was down by 3.12 per cent. The FIIs have withdrawn Rs 1,536.73 crore in the first five tradings in April, and DIIs bought Rs 1,129.09 crores.
The market is not in a mood to give any kind of clues to the traders. It formed a Doji candle on a weekly chart with an increased daily range. On Monday, it opened in negative territory and fell sharply over 400 points from the day's high. Though it recovered almost 200 points, it ended with a 230 points loss. In the later four days, the index range was mostly limited to this big bar. It tried to cross the previous week's high on Thursday and Friday. As the efforts were futile, the Nifty formed Dragonfly Doji on Thursday and confirmed the bearish implication on Friday by closing below the Doji close. It also formed a lower high lower low bar on Friday. The Nifty formed two Doji candles in the last five weeks. Within the broader 1000 point range, the last 15 trading session has become more congestive range of 400 points. In these 15 sessions, the Nifty tested 14,880 resistance seven times.
The classical technical analysis says the seventh resistance or support is very rare. So, a close above 14,880 will be a massive bullish breakout. Barring on Thursday, every dip bought into. This is the reason the daily bars have long shadows. It is a buy on the dip market in another way. But, the confirmation to bearish Doji, is not giving the confidence to be bullish biased and go long. The longer the consolidation faster the move after the breakout, as the Nifty is nearest to the resistance, the probability breaking upside generally believed. But, the last two days, it tried hard to close above the resistance. Two failures in a row is not a good sign. In this indecisive, near resistance in the tight range scenario, the best strategy is to wait until the decisive breakout happens. The Nifty is also moving in an upward channel for the last one year. The channel support placed at 14,469, which is the previous week's low. As I mentioned earlier, the current formation looks like a bullish flag within the upward channel. Last week, it closed near the previous week's high but failed to continue the positive movement. The 20-weekly average and the channel support are at the same place. So, in any study, 14,469 and the 20-weekly average 14,328 are the very critical supports.
The MACD histogram suggests the bearish momentum further increased. At the same time, the ADX and +DMIs are below 25 on weekly and daily charts, which is negative. The ADX, +DMI and -DMI are at a confluence, which is indicating a probable big move on the cards. The RSI is at 63.11 in a neutral zone, and does not show positive divergence even on the daily charts. As the indicators showing mixed outcomes, The Nifty may oscillate within the well-defined range. On the upside, 14,880 and Thursday's high of 14,984 is a strong resistance level. Above this level, The Nifty resumes the upward move and can test 15,165 initially.
(The author is a financial journalist and technical analyst.He can be reached at firstname.lastname@example.org)