No Weak Signals But Waning Momentum

The equity indices consolidated for a second successive week. The Nifty declined by 102.45 points or 0.41 per cent. The BSE Sensex is down by just 0.33 per cent. The broader indices outperformed as Midcap-100 and Smallcap-100 gained by 1.29 per cent and 1.36 per cent, respectively. On a sectoral front, the Nifty Media is the top gainer with 1.67 per cent, followed by Realty with 1.33 per cent. The Energy and Banknifty are up by 0.68 per cent and 0.63 per cent. On the other hand, the FMCG sector is down by 2.16 per cent. The Auto and Consumer Durables fell by 0.81 per cent and 0.77 per cent, respectively. The India VIX is down by 6.95 per cent to 16.07. The FIIs bought Rs.11,773.25 crore, and the DIIs bought Rs.67,642.34 crore worth of equities during the month.

As we forecast earlier, the benchmark index Nifty continues to consolidate within the range. With the last two weeks of inside action, the momentum is waning. As the index has not formed a lower low and is trading above the key supports, there are no weaker signals available. It traded in the 24378-25116 range over the last 15 days and closed at the midpoint of the range. It took support at 20 DMA twice during this consolidation. As long as this inside price action is taken out, the directional bias is neutral.

As the MSCI rebalancing happened, massive volumes were recorded on Friday. The volumes were highest after 4th June 2024. Interestingly, the Nifty holds 9 nine distribution days currently, which is the highest number in recent history. Normally, when the distribution day count increases above six, there will be a confirmed downtrend. But the Nifty is in a confirmed uptrend this time. The interesting technical factor is a rare phenomenon. From the 4th March low, the volume trend is increasing.

The Nifty is now 3.30 per cent above the 50 DMA, and just 0.23 per cent above the 20DMA. Even after a 15.51 per cent rally, the 200 DMA is still flat, not in an uptrend.

The 200 EMA and other medium-term averages are in a decisively uptrend. This shows the inherent trend is stronger. The recovery from the 7th of April is very impulsive. All impulsive rallies normally consolidate before continuing the prior trend. A normal consolidation pattern takes 3-8 weeks time. As we stated, the time correction is due now. The 23.6 per cent retracement level of the recent upswing is at 24320.

The 12th Mary low is at 24378. This zone is the crucial support of the consolidation. A close below the 20 DMA of 24692 will indicate a short-term weakness. In any case, the index closes below the support zone, the 50 DMA is at 23960, and the 38.6 per cent retracement level is at 23827.

We can not expect the market to go down below this zone for now. If the Nifty declines below this, it means closing below the 200 DMA.

For the past two weeks, the focus has shifted to mid- and small-cap stocks, as large caps are consolidating. The Midcap-100 index gained by 6.09 per cent, and the Smallcap-100 is up by 8.72 per cent. Whereas the benchmark Nifty has advanced just 1.71 per cent. In the current calendar year, the Nifty is positive by 4.7 per cent.

Several stocks are breaking out of early-stage bases and showing higher relative strength. These stocks show a decent improvement in fundamentals with earnings growth. These stocks have the potential to outperform.