Still more pressure left
It seems more pain is in store for the market price-wise and time wise

The market literally had a roller-coaster ride last week. Thankfully, the highly volatile week wound up with a less than half per cent cut in the Nifty. But a redeeming feature was the small up-moves seen in indices in the first part of the week, which melted away the feeling of bearishness that took hold in the last five weeks. It gave investors the comfort that there would be bounce back.

While a part of the up-move was owing to short covering, it can’t be denied that many mid-cap stocks saw some movement. This is a sign that buying might be emerging at lower levels in select stocks and segments.

At this point, given that year-end selling would still be going on, there is more likelihood of sudden selling emerging than a sharp recovery in indices, like happened in the early part of last week. After Friday’s steep decline, there would be consolidation around 200-day moving average (DMA). The Nifty is anyway not far from this mark.

News flow on the macroeconomic front remained positive. But with that  came the noise around the banking sector. More skeletons tumbled out of PSU banks. Politically also the week was significant, with the ruling dispensation suffering setbacks. There is no point worrying about what would happen on the political front, because ultimately it is earnings and liquidity which determine the market direction.

News flow from the international market was largely negative, with an element of uncertainty infused into global trade. Protectionist noises gained weight and the US events indicate that more measures restricting  global trade are going to come. Those measures many not have much material impact on Indian companies, but are enough to spoil the sentiment on certain key sectors. Since valuations are high, even a small disturbance is enough to bring a correction to the market. A look at the price charts of the companies that have operations in Europe and sell their product in the US clearly show they are aleady under selling pressure, without the market having any idea of the extent of trouble in store in terms of fundamentals.

Coming to oscillator charts, most short-term charts are once again coming into the sell mode. The average and the trigger lines on the daily moving average convergence/divergence (MACD) chart are once again converging with each other, as it comes close to giving a sell signal. While a sell signal is nothing new, the fact that a sell signal is appearing at such a short interval is a bearish indication for the Nifty’s short-term moves.

On the weekly MACD chart, the average and trigger lines have further diverged from each other as it slips southward in positive territory. The ratio of difference between the average and trigger lines have reached a level which—as witnessed on two occasions—indicates that either the correction is near about its end or prolonged pain is ahead for the bulls. From the shape of the candle stock charts, it appears that more pain is ahead price-wise and time wise.

The 12-day rate of change (ROC), which was making an attempt to move into positive territory, has once again slipped southward in negative territory, indicating that the move that started last Friday may have more legs to it, at least for the first half of the week.

Extreme short-term oscillators are in the sell mode as they slip southward and some have re-entered oversold territory, which, again, is not a positive sign given that in a trending market these oscillators tend to stay in the extreme zone and the market keeps moving in that direction.

Coming to short-term support and resistance levels, the Nifty’s first support comes at 10,002, and the next would come in the 9,790 range, where probably we might see a panic bottom getting formed. Another round of selling may happen when the Nifty falls below its 200 DMA as a lot of Algo-based sell trade would be triggered.

The first resistance range for the Nifty is at 10,370. If the index crosses this level, another resistance zone would be at 10,485, which the Nifty needs to cross for the bulls to make any serious attempt to bring back a momentum in the upward direction.

rajivnagpal@mydigitalfc.com

Columnist: 
Rajiv Nagpal