In Charts: What Technicals Are Saying About Indian Markets

“Domestic shares tumbled across the board as dismal global cues and rising Covid-19 cases triggered profit-selling. Investor sentiment was dented as rising infections led to the possibility of fresh lockdowns in some European countries, which could further slow down the pace of global economic recovery,” said Deepak Jasani, head of retail research at HDFC Securities. “Firmness in the U.S. dollar also put pressure on domestic shares.”

• The Sensex and Nifty 50 declined 3.7% and 4%, respectively, for the week ended Sept. 25.
• The broader market, too, posted losses, underperforming the benchmarks.
• All sectoral indices fell during the week.

“Friday’s sharp upside bounce could be a cheering factor for bulls to make a comeback, but the near-term downtrend status of the market remains intact,” said Nagaraj Shetti, technical research analyst at HDFC Securities. “Any upside bounce up to 11,350-11,400 could be a ‘sell on rise opportunity’ in the market, and the expected decline from the highs could retest the lower 10,800 levels in the near term. Immediate support is placed at 10,900.”

The Relative Rotation Graph, used to gauge relative strength of equities against a common benchmark and each other, suggests Berger Paints Ltd., Tech Mahindra Ltd., Titan Co. and UPL Ltd. may relatively outperform the Nifty 500 index.

“Berger Paints has entered the improving quadrant where it is joined by Titan. Tech Mahindra and UPL are firmly placed inside the leading quadrant and are seen moving higher while maintaining their relative momentum,” Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research, told BloombergQuint.

GIC Re Ltd., Bandhan Bank Ltd., Bharat Petroleum Corp Ltd. and Hindustan Petroleum Corp. Ltd, on the other hand, may relatively underperform the broader market.

“Following a sharp loss of momentum, GIC RE has slipped back into the lagging quadrant. BPCL and Bandhan bank, too, have entered into the lagging quadrant where they are joined by HPCL, which continues to languish lower,” Vaishnav said.

The Curious Case Of Dollar Index

After five straight months of losses, the dollar index has reversed sharply and is on course to post its highest monthly gain since November 2016.

But the sharp upmove, according to Abhishek Chinchalkar, CMT, head of education at Fyers, may run into a confluence of technical hurdles before resuming its next leg-up.

The index recently broke the neckline (93.60) of an inverse head and shoulder pattern, signaling a short-term strength. But it hit a hurdle as it failed to close above the trendline on Friday, Chinchalkar said. “This hurdle is a confluence zone where the falling trendline drawn from the March highs coincides with the 23.6% Fibonacci retracement of the fall from 103 to 91.75.”

“Because of a confluence of resistances around 94.60-94.70 zone, a little bit of consolidation/pullback over the next few days cannot be ruled out. However, as and when the index closes above this zone, the short-term trend will turn higher for a rally towards 95.60 followed by 97.30,” Chinchalkar said.

But a stronger dollar, Chinchalkar said, may have a negative impact on other asset classes. “The recovery in the DXY this month has been accompanied by risk aversion across the globe and a selloff among commodities. Gold and silver, especially, have been severely crippled by the dollar’s strength. If the dollar continues its recovery, then one can expect commodities to remain under pressure and the current wave of risk aversion to persist as we head into the final quarter of a rather volatile year.”