Nifty may enter consolidation phase

The equity benchmark indices retraced by half a per cent as the profit booking is the order of the day. The Nifty declined by 88.45 points and settled at 16,631 points. Only Nifty Metal index is up by 1.46 per cent, the IT index is up by 0.17 per cent, and all the other sectoral indices were closed in negative territory. The Auto, Pharma and Energy indices declined by over one per cent.

The Market breadth is negative as 1162 declines and 727 advances. Out of Nifty 500 stocks, 318 stocks closed negative. The India VIX is up by 6.19 per cent, which is the highest in the recent past. About 50 stocks hit a new 52-week high, and 91 stocks traded in the upper circuit. Reliance, ICICI Bank, and Infy are the top trading counters on Monday in value terms.

The Nifty has formed a Doji candle and closed negatively. It formed a lower high and lower low candle.

However, it recovered smartly from the Monday's low due to the recovery in Metal, IT and Banking stocks, but did not sustain till the end. Still, the index breadth is negative, and it failed to close above the opening gap. The Doji or a hanging man candle at the confluence of swing high is not a good sign. It shows the exhaustion of a trend. On Monday, it tested the 20-week moving average. At the same time, the index closed within the Bollinger bands after three days, as we expected earlier.

This is an indication that the market is entering a consolidation phase. As long as it trades below the 16752-794 zone, the consolidation will continue. It may test the gap area support of 16490 sooner or later. With a negative close, it has not given any bearish confirmation. It only retraced, as it was over-extended. The volume is almost subdued on Monday.

The Nifty futures almost closed at the previous day's low. The rollovers are above the three and six months average as of now. In the coming three days, this data may impact the market's sentiments. More importantly, only the Metal and IT indices were closed in the positive bias. The index and broader market breadth are negative. These data points are not good for the market direction. It is better to take the profits on the table.

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