It's better to avoid short positions

The Indian equities gained for the second consecutive session and registered a higher closing. A firm rally in global markets improved the sentiments in the domestic market too. NSE Nifty gained 210.50 points or 1.2 per cent in a truncated week. BSE Sensex is up by 1.1 per cent. The broader market indices, Nifty Midcap-100 and Smallcap-100, advanced by 1.00 per cent and 0.2 per cent, respectively. The PSU bank index was the top gainer last week with 5.1 per cent, followed by Nifty Auto with 3.9 per cent. The FMCG, Media, and IT indices declined by 0.1 to 0.7 per cent. With the renewed buying interest in the last two days, the FIIs selling was limited to Rs4,667.67 crore this month. The DIIs bought Rs10,384.07 crore.

The Indian benchmark index gained for the second successive day and week and inched up to the near-swing high. In the last four trading sessions, including Muhurat trading, the index opened with a huge positive gap, and the gap was filled on Tuesday. The last four days of intraday price action are in a similar pattern. With the wavering and indecisive moves, the Nifty has failed to sustain its momentum. It formed indecisive and bearish candles all the days in the last week. At the same time, as it was not formed at a lower low and did not decline below the shorter period average, the trend has not yet weakened. There are no bearish signs on hourly, daily, or weekly time frames.

The channel breakout during the Muhurat trading session and since then, it has gained only 56 points. The broader market index, the Nifty-500, is almost at the Muhurat session closing level.

The current price pattern looks like a breakout of a bullish flag. It meets all the characteristics of a pattern breakout which is strongly bullish. If the weekly Hanging Man candle gets a confirmation for its bearish implications, it will negate. Otherwise, the pattern targets 19653. For a stronger bullish confirmation, the Nifty has to clear the 17858 and 18115 zone of resistance. Above this zone, it may face a short-term resistance at 18542. In any case, the Nifty fails to close above the 18115-200 zone of resistance and closes below the 17434, means a reversal is on the cards.

The previous closing swing highs are at 17833.35, 17758.45 and 17784.35. Last weekend the Nifty cleared two of them. A weekly close above 17834 is crucial for the market. As said earlier, the Nifty is yet to form a lower low. It is trading above all key moving averages. Currently, it is 2.89 per cent above the 20DMA, and 1.61 per cent above the 50DMA. The index is 4.67 per cent above the 200, and this long-term average is in a strong uptrend. The daily RSI is in a bullish zone and below the prior swing high. MACD line above the zero line, and the histogram shows that the momentum is flat. Interestingly, the trend strength indicator, ADX, is declining.

Barring the PSU Bank index, all the sectoral indices in the leading quadrant fade the strength. The Metal index entered the leading quadrant but with losing momentum. Pharma is gaining momentum.

The Dow index retraced over 61.8 per cent retracement of the prior downswing. The S&P 500 index also closed above the 50 per cent retracement level and at the weekly high. All other global indices also ended at their weekly highs. The DXY closed below the 50DMA is another positive factor for the equity markets.

In a nutshell, the market is not showing any bearish signs now. As long as it trades above the 17500, it is better to avoid taking short positions. For a very short period, the prior day's low will act as support. As the Volatility is at the lowest level, some sharp moves may be possible on the downside if it breaks the support. Be with positive bias with prudent money management principles.

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