In a market that has put in a third straight weekly drop and an unimpressive August, the Nifty's 400-point cage is the story of the week. The index is held between 24,000 and 24,400, with some urgency from MSCI in the last few minutes of trade and Brent at $90. Monday will tell us who comes out on top in a breakout.
Range-bound market at a tipping point
Volumes were up on the prior week even as the Nifty 50 posted a third successive fall, but the overall structure holds. For 11 weeks the price has been squeezed into a tight band, a rising trendline from the April 2 low offering protection.
One has to be careful with the near-term trend. The index is under both the 20-DMA and 50-DMA and has given up ground below the 10-week moving average. Still, the slide was put to rest near the 20-week line at about 24,036, making the 24,000 mark important support on both a technical and psychological level.
There is one thing for the bulls: no lower low has been made. Combined with the Bollinger Bands tightening on the weekly chart, that kind of restraint speaks of coiled energy. Expect a decisive move when the range finally yields.
What flips the bias next
The trigger for an upside move is clear. To make a case for recovery, the index must not only get above the 20-DMA in the vicinity of 24,376 but hold it. It is also essential to stay over the 24,026 low of August 19.
Momentum is a mixed bag. The daily MACD is in the negative, pointing to short-term frailty. On the weekly side it is still below zero but above the signal line, with the histogram’s negative bars receding to suggest the downside pressure is easing.
Large-caps have not kept pace with the broader market, so relative strength against the Nifty 500 is muted. The Bank Nifty is in the same vein, confined to 57,000-58,000, with HDFC Bank the swing factor.
Flows and microstructure shift under CAS
Participation has been subdued since the Closing Auction Session came in, with volumes to match. Today may see a change in tone as MSCI does its rebalancing in the closing minutes, the first time this has happened post-CAS.
Foreign investors have adopted a more defensive stance in their derivatives book. Leading up to the NSE monthly expiry, FIIs pared back index future shorts before putting them back on and finishing the week with a 3.86% increase in short contracts. Longs were at an August low after expiry and down 7.3% for the week, leaving the long-short ratio at 9.6.
Friday was more telling. FIIs added 3% to shorts and took 7% off longs. The weekly numbers are starker: a 14.7% jump in shorts and a 2% trim in longs have pushed the ratio to 7.8, the lowest in August and close to record territory. Such a position is in keeping with the price compression and makes the case for some caution until we see a directional break.
Traders are already positioning themselves for this week’s immediate catalysts. The reasoning is as follows:
– MSCI rebalancing in the final minutes
– Brent crude holding at $90
– A move above 24,400 or under 24,000
– Bank Nifty making its way out of the 57,000 to 58,000 zone
– CAS-driven liquidity at the close
Sector divergence: pharma in the lead, financials on the sidelines
There is little to no range in the tape save for pharma, which stands out as the one bright spot. The Nifty Pharma Index is working its way up inside a rising wedge with higher highs and lows to show for it. Strong participation is evident in the weekly bullish Marubozu and the MACD is edging into a bullish crossover.
Derivatives put some conviction behind the trend. We have seen fresh long build-up in almost 75% of pharma stock futures over the course of the week, with nearly 60% adding longs on Friday. The structure remains positive so long as it holds above 26,600; from there eyes are on 27,200 and 27,800. Relative strength is being shown by names like Divi’s Laboratories, Laurus Labs, Wockhardt and Sun Pharma.
Financials are at an inflection point of sorts. On the weekly chart the Nifty Financial Services Index has put in a Doji near a rising trendline support, a sign of indecision. With the MACD trying to cross its signal line and the weekly RSI at 50, the market is looking for direction.
Yet the derivatives book is still bearish. Some 80% of financial services stock futures were set up to the downside on Friday and about 40% saw new weekly shorts. You can see the technical pressure in ICICI Bank, Bajaj Finance, Shriram and Cholafin, though SBI is more resilient. Support is key in the 25,900-25,700 band; lose that and 25,200-25,000 is exposed. To the upside, one would need to clear the 26,480-26,800 ceiling.
Stock watch and tactical ideas
Glenmark has been the story away from the indices. Riding above-average volumes it has put in a fresh all-time high after breaking a 16-week cup pattern. The short and long-term moving averages are pointing up, the Relative Strength line is at a new high and Bollinger Bands are expanding.
The momentum is there to back it up. A fresh bullish crossover on the weekly MACD, a 14-period RSI in the bullish zone and a strong bar from the Elder Impulse System all point the same way. Analysts are watching to see if it can hold above Rs 2,515 to keep the momentum going, with Rs 2,588 in reach. A proper breakout could take it to Rs 2,652, but a stop loss at Rs 2,460 is prudent.
Monday will be a test of leadership. One can expect to see pharma continue its upswing while financials work through their supports. The Nifty is drawing in dip-buyers as it lingers by the 50-DMA, but intent will be determined by the 24,000-24,400 fence. Keep an eye on Divi’s Labs, Sun Pharma, SBI and Bajaj Finance, as well as Eternal, Laurus Labs, SBI Card and Ola Electric.
In the end the message is plain. Broad index bets are best left alone in favour of relative strength sectors and a neutral to mildly positive view until the Nifty gets out from under 24,000-24,400. Should it break 24,400 the uptrend can be expected to resume; drop below 24,000 and the bears will have the initiative.
