Charts indicate trend exhaustion

Market breadth is positive

• 194 stocks hit a new 52-week high
• 138 stocks traded in upper circuit
• 1,365 advances
• 1,035 declines
• VIX declined by 7.77%

The equity benchmark indices are finally given an exhaustion sign. NSE Nifty was negative with 36.55 points or 0.17 per cent decline and closed at 20,901.15 points. The Energy index is the top gainer with 1.23 per cent. The Pharma, Meidna, and PSU Bank indices were gained by more than half a per cent. The FMCG, Metal and IT indices closed with moderate losses. All other sector indices closed with moderate gains. The India VIX declined by 7.77 per cent to 12.67 level. The market breadth is positive as 1,365 advances and 1,035 declines. About 194 stocks hit a new 52-week high, and 138 stocks traded in the upper circuit. Tata Power, PayTM, Adani Enterprise and Adani Green were the top trading counters in terms of value.

The Nifty got the reversal signal, as it closed negatively after the previous day’s hanging man candle. The price pattern also resembles an evening star and its confirmation candle as the Nifty opened with a gap-down and closed negatively.

Today, it has formed another Hanging Man candle. The last four candles are almost in a similar pattern. This is an indication of the exhaustion of a trend. It may take time to enter into a counter-trend, but forming a consolidation pattern for a healthy trend is necessary. As we expected, the index went back into the Bollinger bands. Now, the index will consolidate in a counter-trend for some time.

If the Nifty closes below 20,850 points, we may see testing of 20,550-460 points. In any case, if it moves above 20,962 points, the forecast is not valid. After a series of bullish bars, the Elder’s impulse system has formed a neutral bar, which is an indication of a counter-trend. Even though the volumes were lower than the last three days, they are above average. Importantly, the Nifty traded in the first hour’s range, and the recovery effort failed to surpass the first-hour high. On a daily chart, the Nifty has formed a lower high and lower candle, which is a negative sign after a whopping over 11 per cent vertical rally. On the hourly chart, it formed lower highs, and the MACD signalled bearish momentum. For the next 3-5 days, we need to book partial profits wherever possible and trial stop losses. If the Nifty closes below 20850, it is better to take out the profits on the table. The PSUs rally is continuing, and most of the stocks are in the over-bought condition. The Bank Nifty gets the confirmation for its bearish engulfing, stay away from the long positions. Overall, we are in an overstretched condition and are keeping book profits.

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