No bearish signs in over-extension of a rally
Intense profit booking likely; Daily RSI is in extremely over-bought zone and MACD line is also too far away from zero line which shows an over-extension of a rally
image for illustrative purpose
The benchmark indices rallied towards historical highs. NSE Nifty missed the 20,000 mark by a narrow margin. It gained by 146 points or 0.74 per cent, and closed at 19,979.15 points. The Nifty Pharma, FMCG and Bank Nifty were up by above one per cent gains. Only Nifty IT closed with a 0.66 per cent decline. The India VIX is up by 1.59 per cent and settled at 11.78. The market breadth is positive as the advance-decline ratio is 1.17. About 145 stocks hit a new 52-week high, and 74 stocks traded in the upper circuit. Reliance, HDFC Bank and ICICI Bank were the top trading counters on Thursday in terms of value.
The benchmark index is almost kissed the 20,000 level, as went touched 19,988.25 and missed it by less than 12 points. It rallied another 134.45 points on a weekly expiry day. Because of Reliance’s price discovery on the demerger of its financial arm, the first hour was in a negative zone. Soon after the price discovery was above expectations, the market zoomed into the green. The Pharma, FMCG, and Banking stocks led the market rally on Thursday. Only Nifty IT was negative, and all the sectoral indices were up on Thursday and showed broader market participation in the rally.
The Nifty rallied by 3,164 points or 18.80 per cent in the last 17 weeks. This equaled to October 2021- June 2021 correction of 18.35 per cent. But, this rally is more impulsive as it achieved it in just 50 per cent of the time of the major correction. The current rally is extended by just over 85 per cent of the prior upside swing. This is one of the most impulsive rallies in the history of Nifty. Because of its impulsive nature, it distances too far from the mean average. Currently, it is 6.05 per cent above the 50DMA and 10.44 per cent above the 200DMA. After December 1, 2022, this is the biggest gap between 200 DMA and the price. The daily RSI entered above 80 zone, which is an extremely over-bought zone. The MACD line is also too far away from the zero line. This condition shows an over-extension of a rally. At this junction, no bearish signs are available, but stay cautious on the rally. Anytime from now, intense profit booking may emerge. It is advised not to be complacent.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
