Profit booking likely ahead of long weekend
The recovery with an increased volume showing buying support is seen at lower levels; Stochastic oscillator is about to give a bearish signal in an extremely overbought zone
image for illustrative purpose
The equities dramatically recovered from the opening lows on the weekly derivatives expiry day. Interestingly, the VIX and Implied Volatility (IV) declined a lot. The NSE Nifty closed at 17563.95 with a 51.70 points gain. In fact, it gained 163 points from the day's low. The Bank Nifty, Fin Nifty and Realty indices closed lower on Thursday. With over one per cent gain, the Nifty IT, Energy, and Realty indices were the top gainers.
All other sectoral indices gained less than a per cent. The VIX is down by 1.46 per cent. The market breadth is negative as 996 declines and 892 advances. About 45 stocks hit a new 52-week low, and 69 stocks traded in the upper circuit. IndusInd Bank, Canara Bank, and Reliance were the top trading counters on Thursday. The Nifty closed above the 50DMA for the second successive day. It opened on a pessimistic note and tested the 17421, which is the support mentioned yesterday, and bounced back later.
It also faced resistance at a 61.8 per cent retracement level for the second day. The index formed higher lows after trading in a tight zone for a brief period. The strong bullish bar negated the previous day's bearish implications of an Evening Star candle.
The recovery with an increased volume shows the buying support at the lower levels. The short-covering in the beaten-down IT stocks played a major role in the recovery. Even the Metal stocks recovered from the lows to a one per cent gain. Negative market breadth for the second day is also a concern. A 100-point rally from 2 pm onwards erased the initial losses. The MACD has reached almost the zero line.
Interestingly, the Stochastic oscillator is about to give a bearish signal in an extremely overbought zone. The RSI is still in the 55-56 zone. Even after a big recovery, the hourly MACD line is still below the signal line. For now, a strong close above 17581 is required to move further highs. Above this close, it can test 17807. Importantly, the Nifty has to break the channel resistance line. Above this important breakout, the Nifty will test or violate the previous high of 18114. On the downside, the 17421 is the crucial support for the weekend. As the long weekend, the market may witness positions unwinding. Booking partial profits on long positions is a wise risk-avoiding strategy.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
