Index trend and stocks in action on July 27, 2020

Bulls continued their joyous ride for the sixth successive week making it a longest winning streak post April 2019. The saying, “when it rains, it pours” perfectly complements the current situation of D-Street. Nifty surged 292.45 points or 2.68 per cent in the last week. However, minor hiccups disrupted the path of its northward journey. Once again, the bellwether of the stock market - Reliance Industries Ltd (RIL) aided market to retain its momentum. Every time markets were in troubled water, it surged to the occasion and pulled markets out of trouble.

Last week, Foreign Institutional Investors (FII) where on a buying spree throughout the week. Their total net buying of equity was worth Rs 7,791.8 crore. On the other hand, Domestic Institutional Investors (DII) were the net sellers of equity throughout the week with total net selling worth Rs 5,323.1 crore.

Just like every good chart analysis, we should begin with the examination of trend by analyzing the trend of the index, looking at the swing points. Going by the simple trend analysis and Dow Theory, if we look at the index, then clearly it is in an uptrend making higher highs and higher lows. The uptrend remains intact as long as the sequence of higher tops and higher bottoms sustain.

Diving deeper, the momentum seems to be fading out as only handful of stocks are leading the rally. Further, the price movements of Nifty for the last four sessions has been in a range of 182 points post witnessing a gap-up opening on July 21. Moreover, the stretched valuations are holding the bulls back from establishing fresh bets. Also, if we take a look at Friday's market action, though the index plunged only 21.30 points, 42 of the Nifty 50 stocks closed in red. This indicates polarization happening in the frontline gauges. On weekly basis, Nifty ascended 1,221 points or 12.25 per cent in the last six weeks. Furthermore, out of those six weeks, three weeks witnessed formation of indecisive candles. And even the weekly spread (difference between the high and low of the week) has been below the 10-week average.

Currently, in the form of Bearish Gap, the index has managed to close within its resistance zone (11,035 - 11,244). Therefore, in the upcoming week as well the Nifty is likely to have immediate resistance placed at 11,244 followed by the strong resistance at level of 11,378. On the southwards, the support is placed at 11,058 - 10,980 levels, breach of which would result into a breakdown of the rising wedge pattern.

Having look at what indicators speak, the 14-period Relative Strength Index (RSI) is in overbought zone and the stochastic oscillator is in a sell mode. Therefore, traders are advised to be cautious and should not consider momentum buying unless the 11,244 level is breached northward. The next target would be placed at 11,378 level on breakout above 11,244 level. On the downside, do watch out for 11,058 - 10,980 levels as it is acting as an crucial support zone.

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