MACD, signal lines indicating lack of momentum

The benchmark index, the Nifty, closed at another new lifetime high on Monday. The Nifty up by 81.40 points and settled at 15,751.65 points. The Energy and Infra indices up by over 1.65 per cent. Nifty IT advanced by 1.11 per cent. The broader indices Nifty Midcap-100 and Smallcap-100 indices outperformed with 1.56 per cent and 1.24 per cent gains. The metal index down by 0.44 per cent, and Realty and Pharma indices declined by 0.25 per cent. The Market breadth is positive as 1,380 advances and 610 declines. Today 266 stocks hit a new 52 week high, and 268 stocks triggered an upper circuit. The cash volumes are low. The utilities, food and beverages stocks are in the limelight.

The Nifty scaled for another new high. It has formed another Hanging Man. On a new high, the momentum is decelerated further. The RSI entered the overbought zone. The Nifty did not close below the prior day low since 20th May. The current move expected as cup breakout has given a significant clue. The Nifty is currently trading 3.5 per cent above the 20DMA and six per cent above the 50 DMA. On the lower time frame, the 75-minute chart suggests a negative divergence in the RSI. The MACD and the signal lines are moving together parallelly, is an indication of a lack of momentum.

Even the positive momentum indicator +DMI also flattened. For protection from unpredictable moves, maintain the stop losses strictly. The stop losses are moving higher to the prior day low of 15,678 points. The derivatives volumes further declined. The PCR is higher at 1.61. The decline in Implied Volatility (IV) and VIX resulted in lower option premiums. This indicates impulsive moves on the cards very soon; the VIX and index have an inverse relationship. It is better to avoid new long positions and cut down the existing long positions, as the upside is limited with unlimited risk.

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