Counter-trend consolidation in the offing
Broader markets trying to come out of oversold conditions; stock-specific activity likely
The counter-trend can retrace at least 38.2 per cent, which is at 19224. If the buying support continues, the index can test the 50 per cent retracement level, i.e. 19344.
The stock market continued to be in positive territory as the broader market tried to come out of oversold conditions. Nifty rallied 93.65 points or 0.49 per cent and closed at 19140.90. Except for consumer and auto sectors, all other sectors registered modest gains. The Nifty Realty is the top gainer with 2.14 per cent, followed by the Energy index with 1.20 per cent. The Nifty Infra also gained by 1.09 per cent. The Auto index was down by 0.90 per cent. The FMCG and Media also declined by 0.42 per cent and 0.06 per cent, respectively. All other indices went up by less than a percentage point. The market breadth is positive. About 65 stocks touched new 52-week highs, and 125 stocks traded in the upper circuit. In terms of value, Reliance, HDFC Bank, and Maruti were the top trading counters on Monday.
Nifty continued its counter-trend and closed above the prior day’s high and 23.6 per cent retracement level decisively. As the bulls were in control, it closed near the day’s high. The volumes were lower than the previous day, which is the character of the counter-trend consolidations. The index tested the 5EMA resistance on Monday. After opening on a flat note, it fell sharply to near the previous day’s low, with high volume. This sharp fall was limited to the first hour. Over two per cent recovery in Reliance has pushed the index above the previous day’s high.
As we analysed earlier, the counter-trend can retrace at least 38.2 per cent, which is at 19224. If the buying support continues, the index can test the 50 per cent retracement level, i.e. 19344. In this process, we can expect a flag or pennant pattern formation. If it forms a flat base or tight ascending base, the index may test the 61.8 per cent retracement level, which is at 19463, a most bull case scenario. We can’t forecast more than this at the current juncture. We may have some stock-specific activity which is in the oversold territory, like Reliance. The daily RSI is still below 40. The MACD histogram shows a decline in bearish momentum.
The hourly RSI is at 53.40 and in neutral zone. Watch this hourly RSI behaviour till it’s above the 55-60 zone. If it forms divergence, it will give signs of ending the counter-trend. So, as soon as the hourly RSI reaches 60, stay cautious on long positions and keep strict trialling stop loss. Stay on with neutral to positive bias.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
