Avoid highly leveraged positions

The equities bounced after a big fall. Except banks and IT all the sectors were positive on Friday. NSE NIfty gained by 97.70 points or 0.44 per cent and closed at 22,055.20 points. The Nifty IT is the top loser with 0.82 per cent, and the Realty index declined by 0.44 per cent. The Bank Nifty is down by 0.14 per cent. The CPSE, Energy Metal sectors led the market rally today with above 1.5 per cent gains. The FMCG, Consumption, and Infra indices registered over one per cent gains. All other sector indices were up by less than a per cent. The India VIX is up another 1.5 per cent to 18.47.

The Market breadth is positive as 1,660 advances and 926 declines. About 52 stocks hit a new 52-week high, and 88 stocks traded in the upper circuit. Polycab, HDFC Bank, Kotak Bank, and SBI were the top trading counters on Friday, in terms of value.

The Nifty traded resilient after previous-day’s big fall and formed an inside bar. This retracement is expected as the index was at crucial channel support. However, the index has not given any bullish signal with this positive close. The volumes were lower than the previous day. It closed 1.11 per cent below the 10-week average. This short-term average acted as strong support since January 23. Four weeks ago, the index closed below this average, but the distance from the average is just 0.58 per cent. It also formed a bearish engulfing candle.

Last week’s Gravestone Doji candle gets the confirmation for its bearish implications. The weekly RSI entered into the neutral zone after November. The weekly and daily MACDs are showing a strong bearish momentum. The daily RSI has taken support at the 40 zone, which is also historical support for the index.

On Friday, the index traded in the first hour’s range and failed to sustain the bullish bias throughout the day. As stated earlier, the current price pattern is like a double-top, which is bearish if it closes below the valley point. The 21,710-21,860 zone will act as a strong support. In any case, if the Nifty closes below this zone, expect a big correction in the market. For an upside, the Nifty must close above Thursday’s high of 22,307 and the 50DMA of 22,297 points.

The event risk (General Elections) is just three weeks away. Expect highly volatile moves on both sides from exit polls on June 1to election results on June 4. Stay with only high-conviction stocks and positions. Do not take highly leveraged positions. The next 3-4 weeks are risky for trading.

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