Market overbought state, time to take out partial profits

THE domestic equity market has witnessed intense selling pressure at a record high. The BSE market capitalisation has hit Rs 260 lakh crore on Friday. The benchmark index declined over 200 points from the day's high. Nifty finally settled at 17,585.15 with a loss of 44.35 points. The price actions have given a caution on extending the trend. Banks closed 143.35 points positively after 800 points intraday volatility. FinNifty and Media indices were up by 0.65 per cent and 0.98 per cent. All the other sectoral indices ended up with 2.5 per cent losses. The Metal, Media and PSU Bank indices were down by 2.4 per cent each. VIX was up by 5.69 per cent and closed at 15.23. The overall market breadth was extremely negative as 1,370 declines and 576 advances were recorded. As many as 121 stocks were traded in the lower circuit.

The banks have saved the market from a big decline. The Nifty touched 17,792.95 and met our target of 17,740 in the morning session. At the new high, the intense profit booking and the index declined by 255 points from the day's high at one point in time. The higher level will act as a very strong resistance for next week. Only in case Nifty breaches 17,740-796, it will continue the uptrend. The relative comparative strength of the benchmark index was very poor compared to a much broader one. The midcap and smallcap outperformance was clearly visible on the chart. As we expected earlier, the BFSI and Auto sectors will be in the limelight for the next few months. As the Nifty hit our target, after base by base, it is time to be very cautious about going for fresh long positions. In the next two weeks the, Nifty may consolidate above 17,250 and test the patience of traders once again. It is an extremely difficult trade from now onwards, as the VIX crossed 15. The RSI reached 80 on the weekly chart and reacting to the downside. The bull market ended when the RSI has reached over 80 zone on a weekly time frame. There is a very low probability of going upside without a consolidation. Within the consolidation, high volatile moves will occur frequently and hit stop losses on both sides. The index has formed a dark cloud cover candle, which is another bearish sign that needs confirmation. As the market is in an extreme overbought condition, it is time to take out partial profits.

(The athor is a financial journalist, technical analyst, family fund manager)