Nifty: The Music Will Stop

The Average Directional Index (ADX) oscillator in the panel below is not a sign of a strong bullish trend. The Average Directional line (green dotted line) is sloping below the previous high.

The only case that could go in the bull's favor is seen with the Positive Directional Momentum (blue line). This has crossed above the Average Directional line and could help continue the trend. Looking at both the charts, we believe bulls should be cautious in the week ahead. Traders should trim their leveraged positions early in the week.

Auto Sector to Underperform

Auto stocks have been favored among traders these days, especially Tata Motors (TTM) and Bajaj Auto.

Nifty Auto Chart

The Auto Index has been trading around the resistance level of the 127.20% Fibonacci level, which is placed at 11,065. Adding to this, the index also faced resistance at the upper area of the Bollinger Band and reversed.

The psychological resistance level of 11,000 will also be a hindrance for the bulls. The triple negative divergence on the RSI strengthens our view of a reversal. The auto sector might be the first sector we believe to end the party and head back towards the 10,000 area.

Conclusion

The music is likely to stop in the markets, and we might see the Nifty reversing next week from the resistance zone of 15,070-15,450. The auto index charts are indicating the party is over, and one should look to book profits in the short-term.

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Disclosure: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research ...

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