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Below the Quote on Weekly Technical Write up by Shrey Jain, Founder & CEO, SAS Online – a deep discount broker

A Bearish Engulfing forms indicating caution to investors on further upside and keep a tab on the downside risk. A bearish engulfing is a reversal pattern usually forms after an extended up move in the index/market. This candlestick is a reversal pattern indicating weakness and selling pressure at higher levels. A Further follow up is required in this pattern and price must close below the candle which means a short term pause and correction in prices.

Technically, Support for Nifty is breached on the downside which was seen at 24900 – 24850 which was its point of polarity. A lower support for Nifty is now at 24525 – 24550 while any upward shift can be from this level but below this, we may witness further selling pressure.

The 14Period RSI for Nifty is at 38.77 and only in case of a divergence we may see some momentum favouring bulls.  ADX, which displays trend strength, is now below 20 indicating a sluggish environment in short term. The MACD composite as well is contracting with most stocks continuously witnessing downward slope of MACD on rolling basis since 22^nd of August.

Breadth Analysis

Breadth for Nifty looks weak with number of stocks above short-term moving averages like 10, 20 and 50 declining to lower levels. This shows a classic divergence in the Index as against the market breadth. India Vix is inching higher and is at 15.21 and it may further move north as IVs indicate a larger move in the offing.

Nifty bank is much weaker as compared to Nifty as it continues to underperform while at the same a false breakout earlier this week and selling pressure on last trading day mounted the bearish sentiment. The lower support of Nifty bank is now placed at 50200 which is a line in the sand, below this a downward correction can be seen which can give deeper cuts to lower levels of 48800 – 49000.

With all this, market needs a healthy correction or period of sluggish momentum that can push weaker money out and a renewed momentum. Adding to that, Seasonality also indicates September to be a muted month globally, US Federal elections will have its own sentimental importance and FII DII data has been mixed with FII net negative in cash (-20339 Cr) in August and marginally positive in FnO in Index Future (3821 Cr.)

Global Events - Sentiments

Fed rate cut needs to be look forward to with 25 BPs discounted, non-farm employment data and any surprise in economic data can push FED for 50 BPS which could spark rally, but during the process, a consolidation with impulsive sentiments is on the cards.

Sector Analysis
Sector wise, Finance and FMCG are in leading zone with long build up while Realty, Infra, Power is in weakening zone with short built up. Technology and pharma are expected to see some sideways consolidation while trend remains largely positive. We expect Financial services to continue to lead while it can be followed by technology.

Nifty Chart Amibroker. MACD Composite, RSI Composite and ADV Dec Breadth in Black

Nifty Chart TV

Nifty breadth Chart

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