All the benchmark Indian indices – NIFTY, SENSEX, BANKSNIFTY and others - had a bull run for past few years until 2018. Since August-September 2018 however, the market is showing increased volatility and deeper pull-backs, slowing down the bull run.
Since beginning of 2016, NIFTY is following an upward channel. However after posting all time high in June 2019, now it is testing the lower end of the channel, at 10900-11000. From historic price action it is also an area of consolidation in the second half of 2018. On the big picture, the uptrend is still intact and this is a mere correction of 12% from its all-time high (also most recent peak).
However when we look at midcaps, the picture is totally different. NIFTYMIDCAP50 hit all time high in January 2018, the same time NIFTY hit one until that time. Since then MidCaps are on a steady decline even though NIFTY has posted two higher highs. During past few weeks it has broken below a significant level at 4300, that was acting as a ‘structural support’, confirming a downtrend technically.
When we see this kind of divergence in the big picture, something is not right about the broad market.Often the health of the midcaps suggests overall health of the economy – as more jobs are generated by the midcaps, small caps and small businesses. In an economic downturn, these companies are affected much more than the larger ones, given their lower strength and limited capital.
Keeping that in mind, we should look at the NIFTY big picture uptrend. In the smaller timeframe (daily) however, we see that the market is in a downtrend, having experienced a structural failure below 11200 level that was an origin of almost 1000 points rally in May 2019 that took market to a new all time high.
Having failed below 11200 level in August, the market made three failed attempts to rise again.
On daily timeframe, we see the market showing signs of weaknesses. It is in an area of balance where the market had spent almost five months – from November 18 to March 19. This was an area of consolidation, and we expect the market would spend some time there staying range bound between 10600 and 11200. A clear break below 10600 can take this market to 10000 or even below, whereas a clean break above 11200 would start a new uptrend in this timeframe.
In the short term the trade calls would be on range-bound trades. Stay tuned for specific trade calls.