Charts indicate exhaustion in rally

The equity benchmark indices rallied to above 19,800 points with fewer stocks support. NSE Nifty hit a new high at 19,819.45 and closed at 19,749.25 points with 37.80 points or 0.19 per cent gain. Nifty IT and Energy indices were the only gainers, with 1.06 per cent and 0.36 per cent. The PSU Bank index was down by 1.23 per cent, and the Media index declined by 1.84 per cent. All other sectoral indices were closed in the negative zone. The broader market breadth is negative as the advance-decline ratio is at 0.69. About 140 stocks hit a new 52-week high, and 61 stocks traded in the upper circuit. HDFC Bank, Reliance, Infosys, and ICICI Bank were the top trading counters today in terms of value.

The Nifty closed at another all-time high, but formed an exhaustion candle. It opened with a positive gap and closed below the open. It formed an Evening Star candle. In any case, it opens with a negative gap and closing negative will signal the first sign of weakness. As we have a series of pattern failures, we must wait for a confirmation of the bearish implications. At the same time, the Nifty closed above the previous day’s high, which is a strong signal. If the Nifty close below today’s low of 19707, is an early sign of reversal. Today’s gain with negative breadth is not a good sign.

Infosys, Reliance and ICICI Bank have protected the index from a bigger fall. Only 19 of Nifty 50 Stocks closed positively today. The Hourly MACD is about giving a bearish signal. The RSI has flattened in daily and hourly charts. The index reacted from the channel resistance. In any case, if the index fails to move above today’s high of 19,819.45 will indicate a consolidation in the near term. As the index and some of the index heavyweights are in an extremely overbought condition, it may be difficult to move further, without a reasonable consolidation, like in earlier cases. It is better to be with a neutral stance and keep booking profit. We may get the opportunity in the next dip. The risk-reward ratio is not favourable for long positions at the current juncture.

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