MACD histogram shows increased bearish momentum

NSE Nifty and other key indices closed with gains, with the large-cap stocks recovering from the lows. The Nifty gained by 97.70 points or 0.50 per cent. Only Nifty Auto and CPSE indices closed with marginal losses. The FMCG, Infra, and Realty indices were the top gainers with over one per cent gains. All other sectoral indices closed with 0.10 per cent to 0.93 per cent gains. The India VIX is still at 10.45. The market breadth is positive as the advance-decline ratio is at 1.36. About 147 stocks traded their 52-week high, and 74 stocks were in the upper circuit. HDFC Bank, Tata Motors, and Bajaj Finance were the top trading counters on Tuesday in terms of value.

The Nifty bounced above the previous day’s high with the recovery in Reliance, ITC and L&T’s encouraging earnings. As suspected earlier, the bears are not able to show strength beyond 2-3 days. The index closed above the 8EMA again. After a massive 137 points first-hour move, the index failed to sustain its momentum. The Nifty retraced 50 per cent of the first-hour move. It closed on an hourly moving average ribbon support. The hourly RSI failed to move above the 60 zone, even after the big bullish move. As the expiry is scheduled, the first-hour move is probably because of short covering. The MACD histogram shows the increased bearish momentum. In other words, the strong bounce does not have any impact on indicators. As the index closed above the precious day high, we have to be optimistic on the upside.

The Bollinger bands are further contracting, and the consolidation may continue below the 19,992 points. To continue the upside move, it must close positively on expiry day, and 19,887 points may act as immediate resistance. On the downside, a close below 19,708 points is negative. Tuesday’s low, 19,615, and the previous week’s low 19,562, is an important level or a support zone. A close below this zone in the next two days means the Nifty has formed an intermediate top at 19,992 points. The 20DMA support now is at 19,520 levels. For a directional bias, let us wait and watch the next two days of price action.

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