No bullish signals from the markets

The much-awaited rollback of FPI surcharge and stimulus package for the economy came after the market hours on Friday. The hopes of stimulus suddenly boosted the market sentiment. Nifty rallied 234 points from the bottom of the day.

31-point presentation by the finance minister announced various measures including rollback the surcharge to enthuse the capital markets. But, at the same time, before announcing the measures, she mentioned the global slowdown.

Meanwhile, the global rating agency Moody's reduced India's GDP forecast. The slowdown is imminent across economies globally and we are better than others.

But the question is, Are we better than last year? Will India overcome global slowdown or recession fears? The answers will appear over a period of time.

The market fell 12 per cent from the lifetime highs, not just because of FPI selling. Everyone accepted that still, we are on stretched valuations. So let us wait and watch the next week's market action.

Nifty lost 218.45 points or 1.97 per cent last week. Before the recovery on Friday, all the four days trading sessions completely under the bears' grip. The Sensex was negative with 1.7 per cent last week.

The Mid and Small caps erosion continues with 2.9 and 4 per cent loss in respective indices. Barring Nifty IT (2.9 per cent) and Nifty Pharma (1.3 per cent) all other sectoral indices closed with the losses.

Nifty realty and PSU indices were the worst performers with over 7.5 per cent loss. Even though the market bounced with surcharge removal expectations, the FPIs sold another Rs. 1737.2 crore worth of shares on Friday and Rs. 12393 crores selling in the month of August.

Technically, Nifty has broken down the bearish flag on Wednesday. On hopes of the stimulus and the package for the auto industry, the market bounces sharply from the lows and formed a piercing pattern.

This is a bullish reversal pattern, generally forms at the bottom, opens with a gap down and closes above the midpoint of the prior trading session. Over 230-point rally from the bottom is mostly discounted the FM's announcement early.

Now, continue this bullish reversal, Nifty needs close above the Thursday's high of 10908 initially and move above the 10990(which is breakdown point). But the first trend reversal signal will come only close above 11186, which is a swing high in a Flag pattern.

Before this level, there are several resistances at 10890, 11045. Once it crosses the 11186 levels the stiffer resistance is placed at 11298. We need to wait and see whether the retesting of the breakdown point will lead to trend reversal or not.

There is a positive divergence visible in the leading indicator RSI. It needs a move above the 42 zones to get a bullish reversal. The Friday's pull back from near the Nov-Feb multiple support zone. By correcting more than 12 per cent from the 3rd June top, the market completed the first category of correction.

Now after correction of 544 points in 8 trading sessions, on the expectations of stimulus measures it already retraced the 38.2 per cent of the fall. On a positive news flow, will the market continue its euphoric move above the 9th August level off 11181? That question before the traders now.

There are many instances on positive news expectation, the market moved sharply up and on news day it closed negative. Will it be a sell on news case? Wait and watch next week close. Most of the trend indicators are not showing any up-trending signs.

As the most trusted short-term trend indicator 8EMA is also still down and much above the price. With Friday's move, the price came inside the Bollinger bands. The bands and neckline are still trending down.

The Magnet of the market 20dma is placed at 11014 and medium-term trend indicator 50dma placed at 11414. These are the resistance levels as well. So now the stimulus news must take the market above all these levels.

At the same time do not be bearish as long as the Nifty closes below the prior low. Continue with the direction of the market. For next week, Monday's first hour low is key for the market direction.

Wait for an hour on Monday opening and to get a clear direction of the market. Remember, Global markets crashed once again on Friday.

(The author is a financial journalist and technical analyst. He can be reached at [email protected])