Wait for a breakdown at 19,560 level for shorting

Profit booking continued for the second day, and benchmark indices closed on a flat note. NSE Nifty closed with just 13.85 points decline at 19,646.05 points. The Nifty Realty, CPSE, PSE, Media, and Energy sector indices gained by 1.29 per cent to 1.83 per cent. The Nifty IT, Bank Nifty, and FinNifty were the top losers with over half a per cent loss. The India VIX is at its lowest level after 2011, at 10.13. The market breadth is at 1:1, as the advance-decline ratio is at 1.08. About 157 stocks hit a new lifetime high, and 66 stocks traded in the upper circuit. Reliance, Tata Power, and HDFC Bank were the top trading counters on Friday in terms of value.

As we forecast, the mean reversion has been achieved in Nifty and Bank Nifty. Both indices tested the 20DMA. The Nifty took support at the 20DMA, but, Bank Nifty closed below the 20DMA. The Nifty tested the previous week’s low, missed forming a lower low candle by just one point. It formed a parallel low and lower high, which looks like a double top pattern on an hourly chart. On a daily chart, it formed both lower high and lower, which is an early sign of a reversal. The decline of 0.50 per cent during the week, with higher volume than the previous seven weeks, shows a clear distribution. It has formed a hammer candle, as the index bounced about 100 points from the support. If the decline extends beyond three days, we will see a clear reversal signal, and the hammer candle’s bullish implications will be erased.

As stated earlier, the 19,562 points, which is the previous week’s low and the 20DMA, currently at 19,578 points, are the crucial support zone. Only a close below this can get the bearish signals. On the upside, if the index closes above Friday’s high of 19,695 points, it is positive and will resume the uptrend. The weak signals are emerging; it is time to book the profits and wait for a breakdown of the 19,560 level for aggressive shorting opportunities.

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