Stay cautious as Nifty forms bearish candle

On a weekly expiry day, the equities traded sideways. The Nifty declined just 18.10 points or 0.10 per cent and settled at 18297. With Hyderabad pharma companies DrReddy's, Divis, and Laurus Labs declining sharply, Nifty Pharma index is the top loser with 1.26 per cent down. Infra and metal indices also closed with 0.69 per cent and 043 per cent fall respectively. The sectoral gains were limited to less than half a per cent. The Nifty FMCG is the top gainer with 0.46 per cent, followed by the auto index with 0.38 per cent. The India VIX is up by 1.01 per cent to 13.21. The market breadth is positive as the advance-decline ratio is at 1.63. About 68 stocks hit a new 52-week high, and 62 stocks traded in the upper circuit. HDFC Bank, L&T and ICICI Bank were the top trading counters on Thursday in terms of value.

The Nifty opened on a strong note on Monday, formed a strong bullish candle. By trading above the previous week's high, it negated the weekly shooting star's bearish implications.

After Monday's strong bullish candle, the momentum is subsidised. For all remaining three days, it opened with positive gaps, but it did not sustain. On Wednesday, it formed a Dragonfly doji.

Though it opened with a positive gap on Thursday again, not sustained at the higher levels and formed a bearish engulfing candle. Earlier, several bearish patterns failed without confirmation. Unless it gets confirmation by closing below Thursday's low this time, we cannot assume the weakness. The momentum is certainly flat as the histogram further declines. All the sectors indices closed on a flat note, which also indicates that the broader market has lost momentum. On the weekly derivative expiry day, the intraday range was limited to just 119 points.

The RSI is also slightly negative. The Elder impulse system formed neutral bars for three days, showing waning momentum. The Bollinger bands suggest that the trend is over-extended. The CCI indicator shows clear topping formation in the index. On an hourly chart, the index has formed lower highs and lows. As it formed a bearish candle with an increased volume, it shows a profit booking or a smart distribution. It is better to stay cautious with light position size. On the weekend, Karnataka state election results are scheduled, and traders may be willing to unwind the positions to avoid the event risk.

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