Positive divergence an early signal for a bounce in the mkt
Nifty Midcap-100 and Smallcap-100 close in positive territory with modest gains
image for illustrative purpose
FOR the fourth consecutive session, the market closed on the negative bias. The Nifty declined by another 86.10 points or 0.49 per cent. The Pharma, Media and Metal sectoral indices gained over 0.50 per cent. Bank nifty and Fin nifty declined by 0.55 per cent. The Nifty Midcap-100 and Smallcap-100 closed in positive territory with modest gains. The Overall market breadth is positive as 1036 advances and 911 declines. India VIX declined by 6.48 per cent and closed at 17.21. About 83 stocks hit a new 52 week high, and 138 stocks traded in the upper circuit.
The Week ended with a perfect doji candle. Historically, the most bullish October month has opened with indecision. The Nifty closed exactly at the opening level. It opened below the 20DMA and failed to move above it during the day. It recovered 80 points from the day low. It took support at the prior upward channel. Only a close below 17,452 will be bearish. There is a strong possibility of bounce and testing of 17,750 levels before it gives a decisive trend signal. The expected bounce will create a lower high. The trend will reverse only a close below 17326. The momentum is negative, and the market breadth is positive. This broader market divergence is creating a unique situation. The VIX declined 6.48 per cent is another factor to watch. Nifty declined only 2.6 per cent from its lifetime high.
The recent declines from the swing high are limited to less than three per cent. After February-April 8.3 per cent decline, there was no major decline in the market. The 50DMA support is still 4.16 per cent away, at 16831. Unless global and domestic negative triggers occur, do not expect a major correction for now. Monday opening is most probably a positive, as the RSI has given a positive divergence on a 75 minutes chart. This positive divergence may be an early signal for a bounce in the market. Only a close below the doji candle will have bearish implications. Otherwise be with a positive bias on Monday.
(The author is chief mentor, Indus School of Technical Analysis
Financial Journalist, Technical Analyst, Family Fund Manager)
