Charts signal profit booking at higher levels

Indecisive candles are sign of exhaustion, but are not bearish. As long as the index is forming higher low bars, be with positive bias. The 23,334 level, is immediate support, below which the index may test 23,204 points. On the upside, the 23,600 zone is the strong resistance for now

The equities traded rangebound and ended at a new high. NSE Nifty gained 174.8 points or 0.75 per cent. The BSE Sensex is up by 0.39 per cent. The broader market indices, Midcap-100 and Smallcap-100, were outperformed by 3.82 per cent and 4.81 per cent. Nifty Realty is the top gainer with 5.57 per cent in the top gainer. The Media and Auto indices advanced by 4.42 per cent and 2.81 per cent. On the flipside, the Nifty IT is down by 1.62 per cent, and FMCG declined by 1.26 per cent. The advance-decline ratio is positive for the week. The FIIs were bought in three days. Overall, they sold Rs11,687.59 crore, and the DIIs bought Rs11,872.09 crore worth of equities. The volatility index collapsed to 12.82 and declined by 24.13 per cent.

After a massive 2,057 points or 8.81 per cent move in the previous week, the Nifty traded in a narrower range of just 283.75 points. As anticipated, the volatility collapsed to the mean, indicating a more stable market. Despite an indecisive move, the Nifty managed to move higher and closed at a new lifetime high, suggesting a potential for further growth. All five trading sessions in the week formed indecisive or bearish candles, with Friday forming a perfect Doji candle. This is a common phenomenon that price actions will be rangebound after a strong impulse move. The index has formed higher low and higher high bars; it has not given any bearish signals, though there is indecisiveness. Interestingly, the index closed below the opening level, and the price action was limited to the first hour in all five days, indicating a unique price action that is rarely seen.

There are no event risks or major influential factors now; the market may trade rangebound for the next month until the general budget. The new government’s first budget is expected to be aggressive and industry-friendly to push growth. Until then, trading will be stock-specific with a sector rotation.

Technically, the Nifty is in uncharted territory. As it formed a series of indecisive candles, expect a muted opening on Tuesday. The global trade set-up on Monday will be a factor to consider before taking a trade. At a new high, the momentum is completely dull. The RSI is flat and hovering around the 60 zone. The Weekly RSI still holds a negative divergence. The weekly MACD has given a fresh, bullish signal. In this scenario, we can’t be bearish as the index formed higher lows. The indecisive candles are signs of exhaustion, but are not bearish. As long as the index is forming higher low bars, be with positive bias. Friday’s low of 23,334 points, is the immediate support. A close below this will give short-term weak signals. The 8EMA support is now at 23,204 points, which is a strong support. A move below this means the index entered into a counter-trend consolidation. It may test the 20DMA of 22,884 in the next 5 to 8 trading sessions. On the upside, the 23,600 zone is the strong resistance for now. It will be a herculean task to sustain above this level. The derivatives data also indicates the same.

As the underlying strength is strong enough to be positive, it will be wise to stay with the trend. We may see PSUs and defence stocks continue to outperform. FMCG and Pharma stocks are improving their relative strength and momentum and may begin outperforming. Stay with a cautiously bullish approach and keep trail stop losses to protect the profits. Expect the profit booking at higher levels.

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