With extremes surprise the US services sector activity data indicate weakness in non-manufacturing purchasers manager index fell to 51.4 in August which lowest reading since February 2010, from the earlier level of 55.5 in July. Now this lowered the chances of the Federal Reserve will hike rates and market took it as positive and open positive tracking other Asian markets in its early session. However, Nifty failed to hold the gain and closed lower at 8,917.95.
Nifty in its daily chart has formed a spinning top candle stick pattern. A spinning top generally appears after a strong rally, which indicates the momentum is lacking for the buying interest or bulls after a strong move is in rest. To get the trend, whether it is temporary pose after which market will move further higher or start of a short term correction will need further confirmation.
Going forward key level to watch is 8,940, holding above this level chances will remain for another leg up. On the other hand if bull failed to hold above 8,940 a short term correction may triggered in the market followed by profit booking from existing long. As mentioned in our previous report the momentum indicator, after the strong trend we have witnessed in last couple of month is starting to show some negative divergence. While this is normal considering the trend but chances of market moving higher still very high, especially the given market breadth trend of which is still very strong.
In MACD indicator the signal line, MACD line and histogram are all in its longer time series chart indicating medium term uptrend. As such any correction is likely to be short term and should not move significantly below the 8830 level. Important support zone is at 8940 and a move below this level trader should book partial profit from the existing long position and should re-enter around 8800-8830. On the upside resistance around 9000 being a key level is likely to offer short-term supply.
(The author is founder & CEO at CapitalVia Global Research)