Caution alert in overheated market

Negative Mkt Breadth

• 1,703 declines
• 837 advances
• VIX declined by 1.54% to 13.57 level
• RSI in bullish zone
• MACD gives a fresh bearish signal

The equities witnessed a profit booking at higher levels on Tuesday. A majority of sectoral indices ended lower. The Benchmark Index Nifty declined by 65.15 points or 0.29 per cent and closed at 22,032.30 points. The Nifty Metal, Media, and FMCG indices were positive by 0.17 per cent to 0.99 per cent. The Nifty Realty, Pharma, and IT were the top losers on Tuesday with above 1.14 per to 1.66 per cent declines. All other indices declined by less than a percentage point. The India VIX declined by 1.54 per cent to 13.57. The Market breadth is negative as 1,703 declines, and 837 advances. About 197 stocks touched the new 52-week high, and 107 stocks traded in the lower circuit. IRFC, HDFC Bank, JioFin, and ITI were the top trading counters in terms of value.

With the across-board profit booking, the Nifty has formed a bearish candle. In fact, it is the higher low candle too. It escaped the distribution day as the volume was less than the previous day. The index breadth is also negative. The IT and Pharma stocks witnessed the most of the profit booking counters. The heavyweight Reliance also contributed 33.18 points to today’s decline. For technical reasons, like the index closing out of the Bollinger bands, it shows an overbought or over-extension of the trend.

With Tuesday’s decline, it came into bands, The RSI is still in the bullish zone. If it fails to move above the 74-75 zone and declines below the 60, it will be negative for the market. As the index is trading at a new high, we cannot assume the market will reverse in the short term. Unless, the declines extend more than 3-5 days, we can’t expect a bear’s domination in the market. On an hourly chart, the MACD has given a fresh bearish signal. As the advance-decline ratio turned negative, and the lower circuits were outnumbered today, we may see a continuation of decline tomorrow. But if the Nifty trades positive in the opening hour, we may see a renewed profit booking in the afternoon session. The previous day’s low of 21,963 will be immediate support. Only below the level, we can expect some weakness in the index. Above the 22,000pts, the positive bias may continue and today’s high of 22,124.15 pts, will act as resistance for now. For now, it is the time to be most cautious as the market is overheated.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)