Nifty trend and stocks in action on September 14, 2020

Barring the last trading session of the week, which turned out to be a lacklustre one as the price oscillated in a narrow range, the rest of the week was filled with action. As a result, the spread was about 259.80 points for the week gone by, where Nifty settled with a gain of 1.15 per cent.

Basically, if we had to sum up the entire week in just one line, it would be best described with this, ‘Nifty gains on the back of a strong upmove by the heavyweight Reliance Industries as it jumped almost 12 per cent and hit $200 billion market cap mark’. On the flip side, Nifty Mid-cap and Small-cap settled with a net loss of 0.95 per cent and 0.51 per cent, respectively.

The price action of the week formed a hammer-like pattern, following a bearish engulfing candlestick pattern, which was formed in the prior week. From the recovery of March lows, we have two key observations. First, the follow-up selling has been missing, and second, either a moving average or a trendline comes to rescue the bulls. And this time, it was no different as the rescue act was done by the 50-DMA, which acted as major support.

With bulls bouncing off from the 50-DMA and closing above the 11,400 mark along with gains of over 1 per cent, this definitely raises a question about the advantage the bears had gained in the prior week with the formation of a bearish engulfing candlestick pattern on the weekly timeframe. Let’s dig deeper and get an idea about the roadmap for the upcoming week.

Technically, Nifty has retraced almost 50 per cent of the recent down move and furthermore, it has filled up the opening downside gap of September 4 partially. If we check on the daily chart of Nifty, it had formed a Doji like pattern on Friday right at the 50 per cent retracement level and near the downside gap area. Meanwhile, Doji is considered as an indecisive candlestick pattern, so the formation of an indecisive pattern right near to the downside gap area and 50 per cent retracement suggests that the bulls either are taking a breather or they are worn out after bounce-back from the 50-DMA.

Further, if we look at the hourly chart, the price traded within the high low of the first hourly bar of Friday, which again is suggesting that either the bulls are in a breather or they are worn-out. So, whether this is a breather before the next round of rally or just a last breath before the fall, only price could confirm this. Hence, if in the coming session, the index breaches its support level of 11,390-11,370, it would be the first sign that the dark cloud is looming and the next support region would be between 11,250 and 11,300. A close below this support region would confirm that the bear army is moving ahead to conquer the street.

On the flip side, the immediate resistance for Nifty is placed around 11,510 levels, followed by a major resistance level of 11,565-11,585. Until and unless, the index does not close above this level, the bulls would be on slippery ground.

The 14-period ADX on the daily timeframe suggests that the prior trend is losing its strength as the ADX has moved below the 20-mark. The directional indicators have just seen a bullish crossover as +DI has moved above –DI. The leading indicator, RSI, once again reclaimed to be above the 55 zone. In any case, if it sustains above the 60 zone, it would strengthen the bulls further. It has given a buy signal on Wednesday by forming a swing. The leading indicator had formed a lower low but the price did not make any lower low. This structure is generally bullish as per Andrew Cardwell's RSI rules.

So, for the upcoming week, on the upside, the level of 11,565-85 is likely to act as a resistance zone and on the downside, 11,390-70 may act as a support. Between these bands of 11,370-11,585, traders may not get clear trades either side. Wait till a clear trend emerges.

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