Charts indicate over-extension of rally

The benchmark indices registered a fourth successive positive day and closed at a new high. NSE Nifty gained by 83.90 points or 0.42 per cent and closed at 19,833.15 points. Only the Nifty IT index closed with 0.06 per cent, and all sectoral indices registered gains. The PSU Bank index is the top gainer with 1.95 per cent, followed by the Media index with 1.13 per cent. All other indices closed with decent gains. The India VIX is down to 11.60. The market breadth is positive as the advance-decline ratio is at 1.59. About 141 stocks hit a new 52-week high, and 75 stocks traded in the upper circuit. Reliance, HDFC Bank, and Infosys were the top trading counters today in terms of value.

Nifty closed at another new high and above the previous day’s high. It formed the second consecutive hanging man candle. The volumes were lower than the previous day. As mentioned yesterday, there are no weaker signals available even now. The Reliance bounce in the last hour has resulted in a sharp upside at the end of the day. The heavy-weight stock has contributed 28.51 points in today’s gain.

The index has closed above the rising channel resistance. After December 2022, the index has distanced itself from the 20DMA by 5.46 per cent. On December 1, the distance between the index and 20DMA was 5.76 per cent. Now, it is 5.46 per cent. This scenario shows an over-extension of a rally. The index has to reverse to the mean level, which means it must test the 20 DMA sooner or later. Currently, it is at 19,267 points. As the index is uncharted and has cleared all the resistance, the immediate support is at 8EMA, which is at 19,595 points. As stated earlier, only a close below the prior day’s low will signal the weakness. Ride the trend as long as it trades above the supports.

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