Charts indicate limited upside move

The equity benchmark indices closed positively for the ninth straight session on Wednesday. NSE Nifty closed above the 17,800 level for the second day. It gained by 15.60 points and closed at 17,828 points. The Bank Nifty was the top gainer with 1.38 per cent. The PSU Bank index is the driving force today, as it gained by 1.45 per cent. The Realty index is up by 1.13 per cent. The FinNifty is up by 0.81 per cent, and the Auto index is advanced by 0.44 per cent. The Nifty IT index is the top loser with 2.2 per cent. The Nifty Pharma, Energy, and Healthcare indices were down by half a per cent. The Advance-Decline ratio is at 1.21 as advances are outnumbered. About 49 stocks hit a new 52-week high, and 78 stocks traded in the upper circuit. ICICI Bank, HDFC Bank, and Axis Bank were the top trading counters today in terms of value.

The equities rallied for another day with the support of banks’ outperformance. The Nifty made another Hanging Man candle at the swing high. It also formed a higher high and higher low candle and closed above the prior day’s high. Even though it formed an exhaustion candle pattern, no significant weakness is visible. Volumes are higher than the previous day. The Nifty rallied 930 points or 5.50 per cent from the 28th March low. Now, the swing is nine days old. Generally, the counter-trend rallies in a downtrend do not exceed more than 8 days, and 50 - 61.8 per cent retracement levels.

Currently, it is almost at the 50 per cent retracement level. The 50 per cent retracement level of the downtrend is at 17,858 points. As we made a forecast earlier, the Nifty has almost reached its measured target. Now, the question is will it extend up to the 61.8 per cent retracement level of 18100? It is also precisely the left shoulder high. In such a case, the rally will extend another four trading sessions. The left shoulder high was formed in 13 sessions. The index is now 3.28 per cent above the 20DMA, the longest since November 2022. Generally, the price tries to be near this moving average, which is nothing, but mean reversion. The expansion of Bollinger bands also indicates that the rally is near its maximum level. Today’s rally was mainly due to the short squeeze. The upside is limited to another 100-150 points, but the downside has more potential. The risk - reward is not favorable in the long side. But wait for a decisive directional signal for shorting the market.

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