Don’t take short positions if Nifty trades above 19,562
As Nifty formed a shooting star candle, better adopt cautious approach in mkts
image for illustrative purpose
The dream rally finally took a pause on Friday with the intense profit booking. NSE Nifty declined 234.15 points or 1.17 per cent and closed at 19,745 levels. Only PSU Bank, Auto and Media indices closed with small gains. The Nifty Index declined sharply by 4.09 per cent, and is the top loser on Friday. The FMCG index declined by a percentage point, and all other indices were down by half a per cent, an average. The VIX is also down by 2.55 per cent. The market breadth is negative as the advance-decline ratio is at 0.82. About 131 stocks hit a new 52-week high, and 57 stocks traded in the upper circuit. Infosys, Reliance, and HDFC Bank were the top trading counters on Friday.
On the weekend, a profit booking spree haunted the bulls. The Nifty declined sharply and retraced 61.8 per cent of the last week’s move. It formed a shooting star candle. The index closed below the previous day’s low and signaled that further weakness is possible. On a decline of 1.18 per cent, a higher volume than the previous day, the index registered distribution day after a long-time. The Nifty tested the 8EMA support on Friday. As expected, the mean reversion is in progress. The distance from the 20DMA has declined to 1.92 per cent from 3.39 per cent (Thursday). The reversion is also sharper. The 20DMA is currently at 19,372pts. Before that, the 8EMA support is placed at 19,695pts, which is near-term support.
As the Nifty formed a shooting star candle, be with a cautious approach with the market. The recent experience with the bearish patterns is not good, as they failed to get the confirmation of their implications. The fall in Reliance and Infosys dragged the market on Friday. The derivative data shows that the long unwinding happened on Friday, and many of the F&O stocks witnessed a short buildup. The RSI declined sharply to 67, from an extremely overbought condition. Next week is crucial for the current trend to sustain. A close below 19,562pts is a confirmation of the shooting star’s bearish implications. As long as the index trades above this level, better not to take a short position. Stay cautious, and risk management is crucial from now.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
