Charts indicate caution alert for longs

Negative Market Breadth

• 1,324 declines and advances were 1,180
• 208 stocks hit new 52-week highs
• 106 stocks traded in the upper circuit
• Index closed completely out of the Bollinger bands for 2nd session

The market moved into the extreme zones with another huge gain. NSE Nifty was up by 168.30 points or 0.81 per cent and closed at 20,855.10 points. The banks continue to lead the market. The Bank Nifty is gained by 1.25 per cent. The energy index is the top gainer with 3.24 per cent, followed by the Metal index with 3.07 per cent. The CPSE and PSE are up by 1.42 per cent and 1.55 per cent, respectively. The Nifty Media, IT, Realty and FMCG were the losers. All other sector indices closed with decent gains. The India VIX is up by 3.58 per cent to 13.45 level. The market breadth is negative on Tuesday as declines were 1,324 and advances were 1,180. About 208 stocks hit new 52-week highs, and 106 stocks traded in the upper circuit. Adani Enterprises, Adani Ports and HDFC Bank were the top trading counters today in terms of value.

Another gap-up and a new high. The Nifty rallied almost 1,100 points in just six days. A massive 10.76 per cent move since the 26th October low, with the highest number of positive gaps. This unprecedented rally is now in an extreme zone. The index closed completely out of the Bollinger bands for the second day. Every euphoric move must undergo a counter-trend consolidation. After almost 11 per cent gain, expecting more means nothing, but greed.

Today, the Nifty closed at days with higher volume than the previous two days and above-average volume. The rally continued with consecutive follow-through days. Now, the Nifty is 6.31 per cent above the 50DMA and 5.16 per cent above the 20DMA. As distance increases from these mean averages, expect a pullback towards 20DMA, at minimum. The RSI is at 82.15, which is also an extreme possible level in recent times. The Commodity Channel Index (CCI), which shows the tops and bottoms a little early, shows a possible reversal. The MACD and other indicators also show overbought conditions in the market. Even though there is a very strong bullish strength in the market, It is better to stay with the trend with utmost caution and vigilance. In any case, when profit booking comes, it will be a massive one. Trial your stop loss to Tuesday’s low of 20,711 points. There is no scope to short the market now. From now on, risk management is key to protecting the profits on the table.

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