Chart indicate bullish momentum

The market lost its momentum after a sharp surging move. The Nifty closed in a negative zone after opening with 60 points gap up. Finally, it closed with 19 points or 0.12 per cent lower at 16240.30. The Nifty Pharma and FMCG indices closed with over one per cent gain. Barring the PSU Bank index, all the indices closed with less than one per cent losses. The broader market breadth is positive as 1151 advances and 920 declines.

But the broader index Nifty 500 breadth is negative. 22 stocks hit a new 52-week high, and 215 stocks traded in the upper circuit. Reliance, Ruchi Soya and Bharti Airtel were the top trading counters today. The Nifty failed to get a follow-through day. It also failed to close above the 16297, which is a 23.6 per cent retracement level, as discussed on Tuesday. After a massive surging move, the benchmark index failed to continue its momentum. Even the broader market indices closed negatively, indicating the strength in the market is poor. The breadth is not so great, though it is positive.

The index opened above the previous day's high and almost touched 16400. The positive bias was limited to the first hour, and later it declined slowly into the negative zone. On an hourly chart, not even a single bar is closed above the previous bar. It looks like a counter-trend, but we will get the confirmation only a day after. The negative closing is not giving the confidence to go long.

After two days of the sharp surge, the RSI has flattened again. The MACD histogram on an hourly chart shows a decline in bullish momentum. The distance between the index and the 20DMA has reduced to 2.38 per cent from 6.4 per cent.

In any case, if the frontline index closes above the 16297, the 20DMA (16636) and the 38.2 per cent retracement level will act as a strong resistance zone. Technically, as long as the previous day's low is protected, we need to with positive bias. As the weekly expiry is in place, we need to be a little careful about the position sizing and risk management. There are a huge number of short straddles built in the system. A short-covering bounce will hurt the traders.

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