Nifty forms lower high, lower low

The equity benchmark index closed in the positive territory after a volatile session. After a positive opening, the NSE Nifty declined sharply below the previous day's low. Finally, it closed at 16,258.25 points with gain of 20.05 points. Media index up by 1.09 per cent and Bank Nifty advanced by 0.61 per cent. IT, Pharma and FMCG indices close on flat to positive territory. The metal index sharply declined by 1.87 per cent. Realty and Infra indices decline 0.95 per cent each. The India VIX is flat at 12.60. The overall market breadth is extremely negative as 1,346 declines and 638 advances. About 124 stocks hit a new 52 week high, and 154 stocks traded in the lower circuit.

The Nifty made a lower high and lower low candle and formed a Hanging Man candle. It also closed below the opening level. It almost tested the four-day low. With the last hour's recovery, it is able to close in the positive territory. Extreme negative market breadth continued, which is not good for a healthy bullish trend. As it tested the 4th August's gap area support, it is possible to fill the gap sooner or later. Any impulse move will move into a counter-trend consolidation. We experienced the consolidation because of the earlier impulse move. There are two gaps on 3rd and 4th August. These gaps may fill in this consolidation. Filling the gap on August 3 means retesting the breakout point. Interestingly, 23.6 per cent retracement level is at 16,155 points, which is a gap support area. As long as the 16,032 – 16,155 zone is protected, the trend remains positive to sideways. Two identical Hanging Man candles at new lifetime highs is a sign of exhaustion. As mentioned earlier, the price closed within the Bollinger bands. The volatility expansion needs to reverse to the mean level. This condition also causes consolidation. A move above the prior bar high will resume the trend. Let us be on the sidelines for some time.

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