Charts indicate mean reversion

Continued selling pressure on banks and financials forced the benchmark index to pare the initial gains. NSE Nifty closed with 31.85 points or 0.15 per cent gain, at 21,544.85 points. With the ZEE’s sharp decline, the Media index was the top loser with 3.32 per cent. The Bank Nifty, and FinNifty declined by 0.44 per cent and each. The FMCG is also down by 0.18 per cent.

The Realty index was the top gainer by 2.52 per cent. The Energy, Infra, IT, Metal and Pharma indices gained by over 0.50 per cent. The market breadth was positive as 1,459 advances and 1,085 declines. About 214 stocks hit a new 52-week high, and 168 stocks traded in the upper circuit. ZEE, HDFC Bank, Polycab, and Trident were the top trading counters in terms of value. The Nifty erased all the previous day’s losses, but failed to protect the maximum gains. It formed an inside bar, trading within the prior day’s range.

The Banks and Financials spoiled Tuesday’s recovery. After Monday's fall, the bulls were able to protect the 21,500 support for the day, but failed to close above the 21,764 points. At the same time, the fall is not extended for the second day. Since October 26, 2023, the Nifty never closed negatively for more than two days. But, it closed near the day's low for the second day, showing an inherent weakness.

Importantly, the index closed below 21,593 points, which was the prior breakout level. In the last five days, it closed below this level for three days, which is also another weaker signal. Now, the distance from the 20DMA is reduced to 0.43 per cent, and the Nifty is trading just 5.15 per cent above the 50DMA. These technical pointers show the mean reversion.

The MACD shows an increased bearish momentum. The RSI flattened on the 60 support. A negative day can shift into the neutral zone. Still, the 21500 is the key support; it can test 21431 below this. These are the levels to be watched for the next two days. As stated earlier, Monday's high, 21764, is crucial resistance for now.

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