RSI Forms Bullish Divergence

The equity indices began a positive journey in the new calendar year. NSE Nifty is up by 98.10 points or 0.41 per cent and closed at 23,742.90 points. The Auto index is the top gainer with 1.34 per cent. The Microcap and Smallcap indices were up by 1.21 per cent and 1.02 per cent. The Media, Consumer Durables, Energy, and Consumption indices advanced by over half a per cent. The Realty index declined by 1.11 per cent. The Metal and Commodity indices closed with small losses. The India VIX is up by 0.42 per cent to 14.50. The market breadth is extremely positive as 2,048 advances and 766 declines. About 46 stocks hit a new 52-week high, and 162 stocks traded in the upper circuit. Tanla, Mobikwik, ITI, Godigit, and ITC were the top trading counters in terms of value.

The new year began with a positive closing, with broader market sentiment improving. The Nifty closed above the prior day’s high and above the 200EMA. However, the volumes did not improve, and there was less participation. The buying interest was sentimental for many. The most important technical development is that the RSI went back into the neutral zone, and it formed a bullish divergence. As the Nifty closed above the prior day’s hammer candle high, it got the confirmation for a bullish reversal.

The MACD shows a significant decline in the bearish momentum. The derivative data also shows, long built-up was seen in the Nifty. If Nifty is able to sustain the positive bias and closes above the 200DMA of 23880, it is a big positive, and the bullish momentum will continue. The index may test the 50DMA, too. For the last seven days, the price action has been mostly limited to the 20th December range. The only concern is the low volume of reversal signals. In any case, the index closes below this session’s low of 23562, is negative, and will resume the downtrend. There are several stocks breaking out of the bases. Identify high relative strength stocks.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)