Negative divergence points to weakness in market

The market is making tiny moves with an increased intraday volatility. On Thursday, it closed with a positive note at 17,369.25 with a 15.75 points gain. It garnered a net gain of 135 points on a weekly basis during the last five trading sessions. The Bank Nifty and Fin Nifty declined by 0.23 per cent and 0.26 per cent respectively. The Nifty Realty was down by 0.74 per cent, and the Pharma index declined by 0.14 per cent. The Nifty Media was the top gainer with 2.97 per cent. The FMCG, Metal and Energy indices up by 0.7 per cent each. The Midcap-100 and Smallcap-100 indices up by 0.29 per cent and 0.64 per cent, respectively. The overall market breadth is positive as 1,070 advance and 852 declines. About 89 stocks hit a new 52-week high, and 157 stocks traded in the upper circuit.

The Nifty has tested new lifetime highs for two consecutive days at the beginning of the week. Later, a profit booking higher levels and formed bearish candles and lower top and lower bottoms candles. On Thursday, it formed an inside bar, as it traded within the previous day's range. It formed a Dragonfly Doji candle on a weekly chart. As we expected, the market goes through a reasonable consolidation for some time. The Nifty has not corrected significantly since last year's low.

The seasonality chart shows that the benchmark index has a tendency of subdued movements during September. October-December is the most bullish quarter. 74 per cent of the time it has out-performed the broader market index Nifty-500, representing 95 per cent of the market capitalisation. So, before another leg of the bullish move, it is healthy to consolidate for a month. Even many of the indicators suggest that the market over extended and is in an overbought condition. After 618 points of the big rally last week, it formed a small body candle, closing below the opening level, which is an indication of exhaustion. The negative divergence on a 75-minute chart has confirmed weakness in the market. A close above 17,389 is positive, and it can resume the uptrend next week. But in any case, fail to move above 17,389 and closes below 17,300, the market will experience a volatile down move.

(The author is financial journalist, technical analyst, family fund manager)