Nifty ends volatile week with gains, auto index shines

The weekly Bollinger Bands further contracted, indicating that further consolidation is a possibility. The Nifty closed below the 20-week average, too. As it formed a long upper shadow candle, it indicates the profit booking at a higher level

In a highly volatile week, the broader market witnessed a positive bias. The Nifty gained by 314.15 points or 1.29 per cent. The BSE Sensex is up by 1.13 per cent. Only the Nifty IT index declined by 1.55 per cent. All other indices ended with gains. The Nifty Auto index is up by 5.45 per cent, and is the top gainer. The Energy and FinNifty are gained by 1.96 per cent and 1.26 per cent, respectively.

All other indices advanced with moderate gains. The India VIX is down by 8.27 per cent to 10.78. The market breadth is neutral for the week. The FIIs sold Rs.5666.90 crore and the DIIs bought Rs.13,444.90 crore worth of equities in the first week of August.

The Nifty has formed an open low and a long upper shadow candle in a highly volatile week. The week is opened with a strong bullish candle, but it fails to attract the volumes, 30 per cent less than the previous day.

On Thursday, with the announcement of GST reforms, the index opened with a big gap up and formed an open high candle. After the 548 range, the index closed just above 50 per cent of the range.

On a weekly chart, the index has formed a higher low. For the last four weeks, the low of 24337 has been protected. The previous week’s sharp decline also failed to close below the 24337-347. As long as it trades above the 24337-432 zone of support, the probability of moving is alive.

But the index failed to close above the 10-week average. The weekly Bollinger Bands further contracted, indicating that further consolidation is a possibility. The Nifty closed below the 20-week average, too. As it formed a long upper shadow candle, it indicates the profit booking at a higher level.

On Thursday, it opened at the 50 DMA resistance, but failed to move higher. It took support at the 100 EMA and bounced on Friday. For next week, these two levels, 24633-963, have become crucial support and resistance.

A close beyond these levels will result in a directional move. The 20 DMA of 24707 is the immediate support. On the upside, a close above the Friday high of 24832 is needed for a bullish bias.

The RSI is hovering around 50 in all time frames, which is an indication of directionless or no momentum at all. The MACD also shows that there is no momentum. The ADX line is declining is also shows no trend strength.

In a Nutshell, if the index forms a lower low on a weekly chart by violating 24432, it will open to a decline towards 24169, which is a 38.2 per cent retracement level, and the 50-week average. A close above the 24980 will resume the upside move and may test the recent high of 25154. As the index shows no momentum, it is advised to be with a smaller position size.

The Auto, Metal, and Consumption stocks are showing solid relative strength; watch them closely. Identify the tight base breakout to take fresh long positions.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)