Charts indicate overextension of rally

The benchmark index Nifty closed above 16,600 level, led by IT and FMCG stocks. It closed at 16,614.60 with 51.55 points gain. The Nifty IT index was up by 2.57 per cent, and FMCG advanced by 1.42 per cent. Pharma index positive by 0.54 per cent. The Nifty Metal index is down by 2.30 per cent. The Bank Nifty, Realty and Media indices are down by 0.5 per cent. The VIX is flat at 13.41. Overall market breadth is negative as 1,273 declines and 670 advances. About 86 stocks hit a new 52-week high, and 162 stocks traded in the lower circuit. The defensive sectors, IT, FMCG, and Pharma sectors protected the market from a big fall. Another day of the negative market is the only worry now. After trading in less than points range most of the time, the NSE Nifty sharply rallied to the new high in the late session. It closed above the previous day's high and near to the day's high. On a 75-minute chart has broken out of a 9 bar sideways range with a decisive move. In the last four trading sessions, it advances by 335 points. With this sharp move, currently, Nifty is trading 3.25 per cent above the 20DMA and 4.5 per cent above the 50 DMA. This indicates the overextension of rally. Generally, any expansion will reverse to the mean level. The RSI (77.52) reached to an extreme overbought condition. At the same time, on a lower time frame, the Nifty made a new high, but the RSI was still much lower than the prior swing. There is a negative divergence in the MACD, too. On derivatives front, the PCR is as high as 1.79, which signals that the upside is very limited. A profit booking may lead to a sharper decline. The decline in the Open Interest shows long unwinding. These are the only cautions, but not the weak signal. Be with the trend as long as it trades above the previous day's low. A close below 16,480-16,495 is negative for the short term.

(The author is financial journalist, technical analyst, family fund

manager)