Tech View: Sensex, Nifty may continue with their consolidation mood, IT sector in focus

Vadodara | Updated: September 9, 2016 8:39:20 AM

Domestic equity markets consolidated with positive bias on Thursday and ended at 18-month high, the entire IT pack suffered on back of TCS issuing a possible loss of momentum in the BFSI sector.

BSE Sensex NSE NiftyDomestic equity markets consolidated with positive bias on Thursday and ended at 18-month high, the entire IT pack suffered on back of TCS issuing a possible loss of momentum in the BFSI sector.

Domestic equity markets consolidated with positive bias on Thursday and ended at 18-month high, the entire IT pack suffered on back of TCS issuing a possible loss of momentum in the BFSI sector. This resulted into opening gap-down losses in all IT stocks which remained throughout the session. Speaking purely on technical terms, we will see the markets still continue to consolidate while the IT pack may see some technical rebound either on Friday or in coming sessions.

On Friday, the levels of 8968 and 9025 will continue to act as immediate resistance levels and the supports are expected to come in at 8910 and 8865 levels. The RSI—Relative Strength Index on the Daily Chart stands at 71.5276 and it once again trades in “overbought” territory. Though it does not show any failure swing, the NIFTY has reported its fresh 14-period high whereas RSI has not. This is Bearish Divergence. The MACD on the Daily Chart still continues to trade above its signal line and is currently bullish. On the derivative front, the NIFTY September futures have added over 3.43 lakh shares or 1.01% in open interest.

Coming to pattern analysis, after forming a high at 8968, NIFTY has been once gain consolidating in a narrow range, very much on expected lines. Such consolidation will continue in coming days as well as the markets are “overbought” and the lead indicators show bearish divergence indicating temporary fatigue. However, such corrective activity will remain in the form of range bound consolidation and limited declines. On the lower side, the levels of 8720-8750 will continue to led solid support in case of any downsides.

Overall, though the lead indicators continue to remain overbought and show some fatigue, the internal strength in the markets remain intact and no major downsides are likely. As we had mentioned in our previous editions, sectors like pharma, auto and select midcap have shown exemplary out performance and will continue to do so. Corrective activities will not see any major downsides but intermittent selling bouts and volatility cannot be ruled out. IT stocks may see some technical rebound as the CNXIT stands at 25-month low but displays Bullish Divergence on the daily charts. Overall, while avoiding shorts, positive caution is advised for Friday.

(The author is Milan Vaishnav, CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory Services)

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