Charts indicate over-extension of trend
Upside potential is limited to another 1 or 2 days as mkt in overbought zone; The index formed another strong bullish candle and erased the last 2 bearish and indecisive candles’ weaker implications on charts; Except for overbought conditions, it is free from weaker signals
image for illustrative purpose
The benchmark indices had another all-time high after a day of consolidation. NSE Nifty closed at 19,497.30, with 98.80 points or 0.51 per cent gain. Barring Nifty IT and FMCG, all the sectors closed positively. The Nifty Realty is top gained with 2.25 per cent. The CPSE, Oil & Gas, Media, and Auto indices gained over one per cent. The India VIX is down by 0.36 per cent to 11.84. The market breadth is positive as the advance-decline ratio is at 1.61. About 172 stocks hit a new 52-week high, and 62 stocks traded in the upper circuit. On Thursday, 36 bulk deals and 35 block deals have occurred.
The Nifty has formed another strong bullish candle and erased the last two bearish and indecisive candles’ weaker implications. All the recent bearish patterns failed recently. The index moved above the 19,500 psychological levels too. The Nifty rallied by 2,674 points or 15.89 per cent from the 20th March low. The index once moved out of the Bollinger bands on weekly and daily charts. The Market breadth has improved. The index gained for the eighth straight session. As mentioned earlier, the minor trends do not extend more than eight successions the majority of the time. There are very few occasions the index rallied more than ten sessions consecutively.
The RSI is above 70 zone weekly and above 78 on the daily chart. Currently, the Nifty is 3.14 per cent above the 20DMA and 5.09 per cent above the 50DMA. As the distance between price and averages increases, the probability of mean reversion increases. These conditions show an over-extension of the trend.
As the majority of the indicators show an overbought condition, the upside potential is limited to another one or two day. Except for overbought conditions, there are no weaker signals available now. At the same time, the Bollinger bands expanded too far, which may result in contraction. As the index moved above Tuesday’s high of 19,434pts, it negated the bearish possibilities. As long as it trades above the prior day’s low, be with a position bias. Only a close below 19,373pts will give weaker signals. If the rally extends beyond two days, the target is open to 19,734pts, which is a 78.6 per cent extension of the prior upswing. Stay cautiously positive for the next two days.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
