It’s not a good time to enter markets now

The bull run on Dalal street continued, and all frontline indices reached new all-time highs. The NSE Nifty closed at 19,189.05pts with 216.95 points or 1.14 per cent gain. The Nifty Auto index touched a new high and is the top gainer on Friday with 2.07 per cent. The PSU Bank index is up by 2.06 per cent. The PSE, CPSE, Pharma, and Services indices closed with over per cent gains. The BankNifty and FinNifty were up by 0.95 per cent and 0.81 per cent and closed at new highs. Barring the Metal index, all other sectoral indices closed higher. The market breadth is positive as the advance-decline ratio is at 1.34. About 126 stocks hit a new 52-week high, and 59 stocks traded in the upper circuit. Adani Transmission, HDFC twins and Infosys were the top trading counters on Friday in terms of value.

The index witnessed a massive and impulsive move after the previous day’s break out, where Nifty has reached new heights. It formed the most bullish candle in recent history, where the low is the open and the high is the close. After indecisive, wavering smaller swings, the last three days strong impulsive move erased all the weakness and bearish biases. The rally was supported by auto, IT, Pharma and BFSI, and the broader market participation. The daily MACD has given a fresh buy signal, and the weekly MACD line is about to cross the signal line. The benchmark index has registered an 88-week consolidation breakout, which can be considered as a Stage-1 Base. A 3.45 per cent move has rattled the bear’s confidence. As the Nifty is in uncharted territory, there is no weakness on the chart.

But, there are several concerns at current levels. The Nifty opened and closed out of the Bollinger bands, which indicated an extremely overbought condition. Even on the weekly charts, also, it closed above the Bollinger bands. Currently, the Nifty is closed at 4.40 per cent above the 50DMA. The RSI (72.62) is just entered an overbought zone. At this new all-time high, the Mansfield Relative Strength indicator is below the zero line, indicating it is lagging with the broader market performance. The India VIX declined to 10.80 is also a caution signal at new highs. Just before March 2020 decline, the VIX was at the same level. Nifty may face resistance at the 19,212-450 zone. Before reaching this level, it may experience a pullback on profit booking. For now, the strategy must be to protect profit. It is not good to employ new capital.

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