NSE Nifty forms Hanging Man candle

The domestic equity markets closed flat a day before the event risk. NSE Nifty closed at 17345.45 points with just a 5.4 point gain. The energy index was the top gainer with 2.68 per cent. The realty index was the top loser with 1.69 per cent. All other indices registered either less than half a per cent gain or loss. The market breadth is slightly positive as 1065 advances and 811 declines. About 69 stocks hit a new 52-week high and 118 stocks traded in the upper circuit.

Just a day before the RBI policy announcement, the equity market felt nervous. It traded with increased volatility on buying and selling bout. The benchmark index, Nifty, has formed a Hanging Man candle at a swing high. This shows clear exhaustion of the trend. Majority of indicators are in an extreme overbought condition and almost lost momentum. Interestingly, the Nifty and Bank Nifty futures closed in the negative zone while the spot prices closed higher.

The last fifteen minutes' sharp decline of 80 in Nifty was a surprise. The PSU banks led the Bank Nifty. After four most bullish days, the Nifty closed flat on the fifth day is an indication of the momentum loss and exhaustion. But still, no bearish or weaker signals are available as of now. The market may be waiting for a trigger to continue the trend or reverse. The monetary policy will give clues for the future direction. The overbought condition in indicators can't be a weakness.

Generally, any vertical rally has to enter the consolidation. On the downside, it may test the 200 DMA of 17017. For the rally to continue, it has to close above the prior day's high of 17390 or at least above the 17355. The current rally has cleared resistances and is trading above the key moving averages. On Wednesday, the first two hours of trading will be crucial to get clarity on the trend.

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