As we move headfirst into the upcoming trading week, the equity market technicals continue to paint a picture of vulnerability, with the National Stock Exchange’s Nifty50 facing possible corrective pressure at higher levels.
Starting with an analysis of the technical structure, we’ve seen that Nifty50 remained in a phase of consolidation last week with a bearish bias, and this pattern could very possibly continue into the week ahead. Given that the NIFTY has already shown some vulnerability at the higher levels in the past week, with a lack of follow-through at these levels, there is a likelihood of the continuation of this vulnerability into the next week as well.
In terms of specific numbers, the 17,210 and 17,290 levels will act as resistance for the Nifty50, while supports will come in much lower at the 17,000 and 16,900 levels. The weekly Relative Strength Index (RSI) stands at 57.52; it has marked a new 14-period low, which is bearish. However, the RSI does not show any divergence against the price. The weekly MACD is bearish and it trades below the signal line, suggesting that the momentum might stay weak for a while.
Reflecting on the pattern analysis, the NIFTY has not only resisted and slipped from the 20-Week MA, which presently stands at 17320, but has also slipped below the 50-Week MA, which presently stands at 17050. A classic text book method suggests that until the markets are below these two averages, the technical setup would remain weak.
Looking at the Bollinger Bands, we see that the Nifty50 is moving toward the lower Bollinger band after drawing resistance at the mid-Bollinger line. This shows that the potential for down move is more in case the mid-Bollinger line is not crossed in the coming week.
It would be crucial to note that a bearish harami pattern had formed on the weekly charts some time ago. This pattern will have larger implications, and considering the current technical setup, the markets will continue to display some weakness at higher levels. This lends to the view that despite some intermittent technical pullbacks, the overall setup remains weak and Nifty is more likely to face selling pressure at higher levels.
Even though we expect a softer start to the week, one should remain highly selective and careful while approaching the markets. The corrective activities can occur at higher levels, and the range for the Nifty might get shifted in the lower direction as well.
In conclusion, the upcoming week could possibly be marked with challenging trading circumstances. The technical setup shows signs of weakness and we may witness periodic bouts of corrective pressure at higher levels on the NIFTY50. Given this scenario, market players are advised to remain cautious, stay selective with equities and protect profits at higher levels.
