Unlike in the previous weeks, the Indian market showed more weakness compared to the international markets last week, as the mid-cap stocks remained mostly under pressure. Another notable feature of last week was that individual stocks were either pushing the Nifty down or pulling it up. On Friday, it was the turn of Reliance Industries, which gained more than 4 per cent, to ensure the Nifty stays in green territory.
When the index is stays in a range bound mode and the market breadth is weak, it is normally taken as a sign of distribution. Distribution, in technical parlance, means that stocks are moving from strong hands to weak hands. Since this is happening in an earnings season, it might not turn out to be a distribution phase in the market, though the mid-cap segment might be turning more stock-specific.
The news flows were mixed last week. The earnings season, as of now, is going on fine. There had been an increase in margins as well as top line. While only very few numbers have come from the banking space, they show that things are finally turning around for the sector. But the numbers from some non-banking finance companies and auto companies need to be watched. If their performance is not as bad as the Street had estimated, then we may see many segments witnessing both short covering and build-up of fresh long positions.
On the macro front, the latest growth numbers increased the probability that the Reserve Bank would be forced to think of a rate cut and more voices are coming out in support of a rate cut. But at the same time enough hints had been dropped from the government side that there would be a package for the farm sector, and that probably is something the RBI may take into view before taking any step.
On the international front, news was marginally positive on the trade war. There were indications that the US-China talks are going on track, though no official confirmations were available. The market is waiting for a positive statement from the Chinese side to believe that things are indeed working out. Whenever that happens, its impact should immediately be felt on metal and oil prices. Despite the rising US inventory levels, if there is a sustained rise in oil prices, it would be seen as negative for the Indian market, as oil is one of the biggest trouble spots for the country both from micro and macro perspectives.
Another interesting point from the global market was that some US numbers were not released because of the government shut down. Already this shut down is one of the longest and if it continues for more time and more data releases are impacted, it might create a negative sentiment in the Street.
Probably after many years that even the short-term indicators have moved in such a narrow range for eight weeks in a row. The moving average convergence/divergence (MACD) on daily charts continue to move in sideways direction on the equilibrium line. The 12-day rate of change (ROC) is currently placed on the equilibrium line and has once again tuned upward, though the negative divergence remains visible on this chart.
Extreme short-term indictors like Stochastic and William % R are still placed in equilibrium and are as confused as they were eight weeks back, still indicating the lack of a clear trend.
Coming to support and resistance levels, 11,000 remains a resistance level that the Nifty has to break with strong volumes and good market breadth, where both financial and non-financial components of it do well, for the bulls to take full charge of the market and also buying confidence has to come back. A close above this level would lead to panic covering by the bears, too. After this level, 11,250 is a range where the Nifty would find some selling and profit-booking pressure, as traders with long positions would then book profit.
The first strong support range for the Nifty comes at 10,750, which it should not break on a closing basis with bad market breadth. If that happens, the momentum will move towards the bears. Nifty traders have to check what is leading the up or down move. If the upmove is being led by a handful of index heavyweights, then take long positions with caution.