It's time to be cautious

The market continued its positive closings but failed to close above the opening level. The Metals rally supported the Nifty's positive closing. It closed at 14,894.90 with just 30.35 points gain. The Nifty Metal index is up by 4.53 per cent. All other sectoral indices are either up or down by a half a per cent. The India VIX once again up by 3.21 per cent closed at 23.3050. The market breadth is negative as 1020 declines and 854 advances. Even the Nifty breadth is negative as 28 out of 50 stocks closed with losses. During the week, the Nifty bounced from the support line to the resistance in a brief span of 5 days. Even after seven attempts, two of them tested the above 14,880 levels, and the Nifty failed to close above the multiple resistance area convincingly. Finally, it closed at 14,894, with just less than a quarter per cent gain. In fact, the Nifty fell 150 points from the day's high on the monthly expiry day. The Nifty opened above the 14,880 zone of resistance and closed on the resistance line. After retracing the little over 100 per cent of the prior swing, it failed to sustain at the higher levels. The current upswing is the sharpest among three upswings in the counter-trend consolidation phase. The earlier swings are 9 and 8 sessions, but the current swing is just 5 sessions with 6.31 per cent rise. The length of prior swings is 6 per cent and 5.05 per cent. So, this sharp swing needs follow-through days to continue further. Interestingly, the downswings are almost equal time-wise and price. Two downswings with 8 days of length, and one are 9 days long. All of them declined at an average of six per cent. This time and price movement evidence is showing the current swing is at the matured stage.

It is time to be cautious, as many of the indicators are in the overbought condition in a shorter period time frame. During the last one month, the Nifty traded mostly within the 14,880-14,265 zone. It tested these support and resistance levels several times. This tight range breakout on either side will lead to the sharpest possible move. It also tested the 8th of April's swing high of 14,984 and moved above the 15,000 levels too. But it did not sustain and closed below the opening level. On a monthly chart, the Nifty is forming the hanging man candle after an indecisive Doji candle. On a weekly chart, the previous week's morning star got the confirmation by opening with a gap and closing at a two-week high. A decline in ADX (21.71) indicates the lack of strength in the index. +DMI moved above the -DMI. As the market lacking the conviction to continue the rally, we need to wait for a decisive close above the 14,900. In any case, the Nifty closes below 14,880 or 14,800, and it will give us negative clues for the market direction.

(The author is financial journalist, technical analyst, family fund manager)