Avoid short positions
Nifty is finally able to close above the 20DMA; However, a 22-point positive closing is not convincing to be strongly bullish
image for illustrative purpose
The equity benchmark indices closed flat to positive bias on a weekly derivatives expiry day. NSE Nifty went up by just 21.75 points and closed at 17893.45. The Nifty IT is the top gainer with 0.70 per cent, followed by the Media index with 0.60 per cent. The Metal index is the top loser with 1.58 per cent. The Nifty Auto and Realty indices are down by 0.58 per cent and 0.52 per cent. All the other indices declined by less than 0.5 per cent. The Market breadth is negative as 1030 declines and 902 advances. About 64 stocks hit a new 52-week low, and 62 stocks traded in the upper circuit. Adani Enterprises, PayTM and Reliance were the top trading counters on Thursday in terms of value.
The Nifty is finally able to close above the 20DMA. On another volatile day, it recovered 137 points from the day's low. A 22-point positive closing is not convincing to be strongly bullish. The broader market breadth is negative, and the index breadth is just 1:1. The higher volatility is normal on a derivatives expiry day, but the volumes are convincing about the upside move. Though the indices are trading volatile on an intraday basis, the VIX is lower at 13.02, which is around 31st January. This sharp decline in VIX may result in an impulsive move sooner or later. Today, the Nifty has formed a dragonfly Doji kind of candle.
The fact is that, for the last six days, the Nifty has been trading within the budget day range. As we stated earlier, the high of the budget day 17972 has to be cleared decisively first, and then it makes a new swing high. Then only the trend will reverse on the upside. The current price action looks bullish as it is forming higher lows. The RSI is near the 50 zone, and the histogram shows an increased momentum. As the index is near the budget day high, we assume that the breakout on the upside is the highest probability. But it requires decisive and strong moves with broader market participation. As we stated earlier, the IT index is almost at the breakout level, which is also the top gainer today. We may see another day of inside action, and next week will be decisive for a directional bias. If the weekly close is above 17973, we must not be in the short positions.
(The author is Chief Mentor, Indus School of Technical
Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
