Nifty decisively breaks out last 7-day range
VIX declined to lowest level since Dec 2019; RSI reached overbought zone; The Histogram declined on a sharp rising day; These are hinting a caution in the market
image for illustrative purpose
On a monthly derivatives expiry day, the indices rallied sharply higher. NSE Nifty closed at 17,915.05 points with a gain of 101.45 points or 0.57 per cent. Nifty IT gained by 1.07 per cent and led the market. The Nifty Realty index is the top gainer with 1.53 per cent. Barring FMCG, all the sectoral indices gained by half a per cent on average. The FMCG index is down by just 0.06 per cent. India VIX closed at the lowest level after December 2019. The market breadth is positive as Advance-Decline Ratio is at 1.75. About 60 stocks hit a new 52-week high, and 66 stocks traded in the upper circuit. HDFC Bank, ICICI Bank and Bajaj Finance were the top trading counters today in terms of value.
The Nifty has decisively broken out of the last seven days’ range and closed above last Monday’s high. By closing above the previous week’s high, the Nifty registered five consecutive higher high candles on the weekly chart. Last week’s Bearish engulfing doesn’t have any relevance now, as the Nifty closed above it.
The Nifty also closed above the 50 per cent retracement level of the prior downtrend. As we discussed earlier, the index may test 18,100-18,115, which is a 61.8 per cent retracement level. It is also probable right shoulder’s high. In fact, the Nifty has broken out of an inverted Head and Shoulders pattern on a daily chart.
During April month, the Nifty gained by 562 points or 3.23 per cent and closed at the high of the month. Today’s breakout with a lower volume is a worry. Importantly the VIX is declined to the lowest level. The RSI has reached the overbought zone. The Histogram declined on a sharp rising day. These are hinting a caution in the market. As long as the Nifty sustains above 17,775 points, stay with the trend. All the long positions must carry a strict stop loss of 17,775 points, which is Anchored VWAP.
Earlier, it acted as a resistance. The previous breakout level is at 17,800 points, tested today and bounced sharply. As mentioned above, the near-term target is 18,100-18,135. It is better to have a positive bias unless it closes below the previous day's low.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
