Trend hints at mkt consolidation

The benchmark indices bounced in the last hour with a sudden rally in the banking stocks. The defensive sectors like IT and Pharma rally also propelled Nifty to recover from the lows. The Nifty closed with 121.85 points or 0.74 per cent gain and settled at 16478.10. Pharma and energy indices are up by 1.20 per cent each. IT index is up by 0.98 per cent, and the Infra index is also up by over one per cent.

Metal is an underperformer with a 1.31 per cent loss. The PSU Bank index is also down by 0.29 per cent. All other indices gained by 0.25 to 0.9 per cent. The VIX is down by 3.52 per cent to 19.14. Market breadth is positive with 1115 advances and 945 declines. About 44 stocks hit a new 52 week low, and 90 stocks traded in the upper circuit. Reliance, Tata Steel, and Oil India were today's top trading counters in value terms.

After four days of decline, the Nifty closed higher with a surge in defensive stock. The Nifty opened with a gap down and recovered smartly by 248 points from the day's low. Finally it ended with a 0.77 per cent gain thanks to the support of IT, pharma stocks. The last hour banking stock rally also helped Nifty to close higher. It formed a bull candle, and a bullish engulfing candle is a signal for an upside move. But, the index is trading below the previous week's low. To avoid the bearish signals, it must close at least above the 16584 or above the 16514.

On Thursday, it opened below the 20DMA and took support. The 200DMA is in a downtrend. Since 13th May, the swings have become very shorter and limited to 3-4 days and consolidated within the big moves. On a 75-minutes chart, the MACD has given a buy signal, and the Nifty closed above the moving average ribbon.

A move above 16484 will be a short-term positive for Nifty. The Nifty consumes more time for the current swing. The current swing is already 19 days. The prior downswing consumed 26 sessions to fall 13 per cent. Before, the upswing consumed just 18 sessions to move 15.6 per cent higher. Even after 19 sessions, the current swing just above moves 4.5 per cent higher from the bottom.

These show the bulls do not have a dominant force to bounce above the 50 DMA. For now, the biggest task for the index is to cross the 50DMA resistance at 16809, which is also near the last week's high. The short-term trend indicator 20DMA is in an uptrend, but the contracting Bollinger bands indicate the consolidation to continue. The RSI is still looking southwards, and the MACD histogram has not higher, which indicates the lack of momentum. As the weekend approaches, it is better to wait for next week for a directional move.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)