Despite no visible weakness, it’s better to be cautious
The last 2 months of price actions were not convincing to be strongly bullish, though it is making new highs
image for illustrative purpose
The positive economic data boosted the sentiment in the market, recovered all the initial losses, and formed a new lifetime high. NSE Nifty traded in the 558.90 points range and closed with 165.70 points or 0.70 per cent. The BSE Sensex also advanced by 0.91 per cent and hit a new lifetime high. On the sectoral front, The Nifty Auto, Metal, and Bank Nifty closed 1-2 higher. On the flip side, Nifty IT and Pharma closed lower by one per cent. The FIIs sold Rs15,962.72 crore in February. The DIIs bought Rs25,379.30 crore. The Market breadth was negative for the first three days and improved to positive.
The Nifty made a new lifetime after initial losses. The index took support again at a 10-week average. The recovery with a massive volume on Thursday and Friday indicates that the price has strength and renewed buying interest. The index closed above the prior week’s high and sustained above the breakout level. It has formed an outside bar, which is positive. The 10-week average has given support four times in the last six weeks. The important character of the current rally since the October 2023 low is that it never closed the prior week’s low. We can consider that only a close below the previous week’s low will give a confirmation for the reversal. The current week’s low (21,860) is equal to the 10-week average (21,852). A daily close below the prior day’s low will give short-term opportunities.
The earlier mentioned target of 22,231 is achieved, which is a 100 per cent extension of prior swings, and met the target. This also resulted in the ascending base of Stage-2. In any case, the rally continues; the next target is 22,780 points. The reason to be bullish is that the daily RSI (62.62) has negated the bearish divergence by closing above the prior swing high and entering into the strong bullish zone. The daily MACD also has given a fresh, bullish signal.
However, some concerns still remain. Barring the last two days of volume, the overall volume trend is declining. The higher volume in declining days is a big concern. At the same time, the daily and weekly trading ranges have increased with volatility. Generally, this is a Stage-3 distribution character. The weird fact is that the distribution day count is reduced to just two. Expect more volatility to come. Next week, in ten days, the general elections schedule will be announced.
The fear of the Jan-March quarter toping is not yet over. The major tops occurred this quarter, 16 out of the last 21 years. A majority of them are leap year. BSE Sensex 1992 (-56.45%), 1996 (-34.33%), 2000 (57.81%), 2004 (32.36%), 2008 (63.70%), and 2020 (-39.35%) are leap years.
In 2106, the Bottom was made in February after a decline of 25.08 per cent. All these leap years have witnessed scams, crises, and collapses, like the Harshad Metha Scam, the Urea Scam, the Dotcom bubble, the Ketan Paresk scam, the World Economic crisis, and the Covid crash. We are in another leap year - 2024 and the first quarter. Next month is critical for the market before the event risks (General Elections & US elections). The last two months of price actions are not convincing to be strongly bullish, though it is making new highs. There are divergences, low-volume advancing days, and high-volume declines are worry factors for now. Though no weakness is visible, it is better to be cautious.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
