Exhaustion in ongoing trend
Nifty closed flat after a volatile session as it formed a long-legged and small body candle, which is indecisive
image for illustrative purpose
What’s Up
♦ India VIX down by 4.31% to 11.32 level
♦ Market breadth is positive
♦ 113 stocks hit a new 52-week high
♦ 100 stocks traded in the upper circuit
The positive bias in the broader market continued for the second day. The Mid- and Small-cap indices retraced 50 per cent of Tuesday’s fall. NSE Nifty is up by 33.10 points and closed at 20,103.10 points. Only FMCG and Media indices declined. The Metal index is the top gainer with 1.49 per cent, followed by the Realty index with 1.39 per cent. All other sector indices were up by 0.11 per cent to one per cent. The Mid-cap and Small-cap indices are up by 1.17 per cent and 1.31 per cent. The India VIX is down by 4.31 per cent and settled at 11.32 level. The Market breadth is positive. About 113 stocks hit a new 52-week high, and 100 stocks traded in the upper circuit. ICICI Bank, Reliance and IRFC were the top trading counters today in terms of value.
The Nifty closed flat after a volatile session. It formed a long-legged and small body candle, which is indecisive. It looks like an evening star candle. At a lifetime high, this candle formation shows an exhaustion in the trend. The index has overextended the rally. The index opened above Tuesday’s high, but by the end of the day, it was back in the range. The Bollinger bands further expanded, and the Nifty closed at the upper band.
Since September 1, the index has not closed below the previous day’s low. As long as it sustains above the previous day’s low, there is an opportunity to short the index. The RSI has flattened above the 70 zone. The MACD histogram is also flat. If the Nifty closed negative on Friday, we can assume that Thursday’s high of 20,167.65 is the short-term high.
On the downside, the immediate support is 19,944 points, which is Wednesday’s low. Only below this level, the profit booking may be intensified. The index failed to close above the prior bar high on an hourly chart. As the last hour’s short-covering on weekly expiry, the index gained by 68 points. There is no divergence found in any of the indicators. Tomorrow’s closing is crucial for the direction. The retesting of the breakout is normal. But closing below the 19,990 is negative. As the index is showing signs of overextension and exhaustion, it’s better to avoid fresh long positions. Keep booking partial profits in the index long. If the index trades above the 20110, continue the long positions. Stay vigilant on both sides.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
