Flag pattern may extend for 2-4 sessions

NSE Nifty has registered a gap-up opening on news-driven sentiments. It failed to sustain the opening gains. The index also failed to move above the 38.2 per cent retracement level. It closed above the prior day’s high and the 5EMA. On Tuesday, it formed an open high candle and fell sharply, indicating the end of the counter-trend. On Friday, it opened with a 90-point gap up and did a rally attempt the next day. The rally attempt with low volume is a character of counter-trend. The next two days of decline with heavy volume indicate the end of the rally attempt. The price pattern is like a Flag pattern, which can extend for another 2-4 days.

The 150DMA, at 18,965 points, is also a flag support line. The index must close above 19,233 decisively for an upside with volume support and a follow-through day. It is forming an inside bar on the weekly chart and trading around the 30-week average. Above 19,233 points, the immediate target is at 19,344 level, which is a 50 per cent retracement level of the prior downswing. The 20DMA at 19,438 level is the ultimate resistance for the counter-trend. On the downside, a close below 18,990 points is important. Before that, a close below Thursday’s low of 19,064 will give a first sign of resuming the downtrend. The RSI is near the 40 zone. It formed a minor higher low.

The MACD shows a decline in the bearish momentum. The index formed a long-legged small body candle, which is indecisive. On an hourly chart, it traded in the moving average for the whole day. As the index is in the counter-trend consolidation, stay with a neutral bias. Avoid highly leveraged positions. As the Federal Reserve paused the rate hike, there are expectations that the RBI will cut the interest rate in the next monetary policy, which will be positive for the market.

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