Dalal Street Investment Journal – July 20, 2019

16 DALAL STREET INVESTMENT JOURNAL I JULY 22 - AUG 4, 2019 DSIJ.in^

momentum is intact. The Nifty is also

consuming more time to retrace. It

consumed 6 days to retrace just 165

points from the July 9 bottom. This

means the market is not in a mood for

faster retracements. Only faster

retracements can build confidence in the

bulls. Let us wait for another 2-3 days or

this weekend to get a confirmation for

the endpoint of the counter-trend.

The other factor like market breadth,

institutional support and earnings are

not so great as of now. The two IT majors

declared their Q1FY20 financial results,

which are in line with market

expectations. As for the other major

sector, namely, BFSI, companies have

declared subdued results, including

index stock such as IndusInd Bank.

This week, heavyweights like Reliance,

M&M, Heromotocorp and HDFC Bank,

will give a clear picture of the current

quarter earnings. Any kind of weakness in

overall earnings will take the market into

the new lows, may be below the gap area.

and has since then corrected about 642

points or 5.30 per cent in 25 trading

sessions. In these 25 trading sessions,

Nifty formed two lower lows and a lower

high. The current ongoing counter-trend

rally may form another lower high,

probably at 11700-11806 zone. But the

trend will reverse towards upside only

above the budget day high of 11981. A

close above this level means the rule of

the downtrend will be nullified as the

index closed above the prior swing high.

The structure between 11981-11461 will

be an interesting one as the counter-

trends will always be in a zigzag fashion.

As long as the gap area is protected, the

bears may take rest for the time being.

The indicator set up is not very

encouraging for the bulls. The RSI is

clearly moving in a downward channel

on the weekly chart and still trading at

the historical support level of 40-45 zone

on the daily chart. The MACD line is

below the signal line for the second week

and with the increasing histogram it is

suggesting that the downward

Technicals

Nifty consolidating in counter-trend

A

fter 13 days of pre-budget
rally of about 356 points or
3.07 per cent, the Nifty
sharply fell about 520 points
or 4.35 per cent in just three
days and formed a lower low. Since then,
the benchmark index is consolidating in a
counter-trend fashion and forming flag
pattern for the past five days. Generally,
the flag consumes very little time in
comparison to the other patterns and
ends mostly at 38.6 to 61.8 per cent
retracement levels. The 38.2 per cent
retracement level is exactly at the flag
resistance line at 11660. The interesting
observation is that the flag is forming
exactly according to the textbook rules,

by forming higher highs and higher lows
with decreasing volumes within the small
range. The flag pattern forms on a sharp
fall or a rise. This pattern is known as
counter-trend continuation consolidation
pattern. As we mentioned earlier, the
budget acted as a trigger point for the
bearish move. The large-caps joined the
bear party by falling like a knife. We had
also forecasted about filling up the May
20 gap. Exactly after filling 90 per cent of
the gap, the Nifty is moving in a counter-
trend consolidation fashion. Generally,
the reason for the gap-filling is the gaps
will act as a potential support area. Nifty
made a lifetime high on June 3 at 12,103,

Roadmap for the next 15 trading sessions

Ideas Nifty Levels Action to be Initiated Probable Targets

Resistance for the medium term 11700 Trading above 11700 on the on weekly closing basis would give further momentum to the bulls. 11782 - 11870

Support for the medium term 11470 -11441 Close below 11441 on the weekly chart would change the trend and trigger a retreat. 11300 and 11100

NIFTY Index Chart Analysis

Equity