Index trend and stocks in action December 09, 2019

The last week was majorly dominated by profit booking, as out of 5 trading sessions, the Nifty ended in red for 4 times and lost about 135 points or 1.12 per cent on WoW basis to close below 12,000 mark. In a surprise move, the monetary policy committee, led by the RBI governor Shaktikanta Das, decided to keep the policy rate unchanged. Also, RBI revised its growth forecast to 5 per cent from earlier 6.1. Both the steps spooked market participants. The bulk of the losses was seen on the final trading session of the week where the benchmark index registered a loss of almost 97 points and closed near the day’s low. The price action of the week resulted in the formation of a Bearish Belt Hold pattern. It almost tested the November 22 low and wiped out all gains of last week as well.
 
The Nifty has rallied almost 1,069 points from October 9 lows to the high of November 28. However, during this period, the index never fell below 38.2 per cent of the earlier upswing. Nonetheless, the current fall is more than 61.8 per cent of the 356 points rally from November 14 to November 28. This hints towards the formation of an intermediate top. In our recent notes, we had indicated negative divergences in major indicators. The divergence has been confirmed, as the RSI closed below the 59 mark and has broken down out of a Descending Triangle kind of a pattern. The next important level on RSI is 47 as it is a swing low registered on October 07, 2019. Historically, the zone of 40-45 has proven to be a good support. We need to wait and watch this time that whether it takes support around these levels or will it go down to oversold conditions.

The daily MACD is bearish and trades below its signal line. The directional movement index showed a warning sign as –DI turned above the +DI. On Friday, the Nifty added a distribution day, taking its total count to five. Alongside this, the index has breached its crucial 20-DMA. Going ahead, the zone of 11,700-11,800 is crucial for the index, as 50-DMA is placed in this region and the change of polarity concept comes into play around this zone as well. If bears manage to take this support and add distribution days to its kitty, it could be a serious threat for the Nifty. Meanwhile, the level of 11,980-12,040 would continue to act as a stiff resistance zone on the upside.