Higher volume indicates Nifty near swing high

On a weekly derivatives expiry day, the equities traded with high volatility after a long time. The Nifty declined over 300 points in just a matter of time. It recovered 220 points later. Finally, the Nifty closed at 17,382 points, with a minor loss of just 6.15 points. Pharma, IT and Metals saved the markets from a bigger decline. They rose from 1.2 to 2.37 per cent.

The PSU Bank index is down by 1.75 per cent, and the Realty index declined by 1.14 per cent. The other indices are down by half a per cent. The Market breadth is negative as 1020 declines and 854 advances. About 54 stocks hit a new 52-week high, and 87 stocks traded in the upper circuit. Zomato, Reliance, and Tata Consumer were the top trading counters in terms of value.

Over 300 point decline in just two hours has given early signs of the end of the current trend. The Nifty opened with a positive gap, and it oscillated in 329 points range. It was the highest intraday range in recent times. At the end of the day, it has formed a Hanging Man candle. Though it oscillated in the highest range, the index did not even test the shorter periods average of 8EMA. It looks still strong on a closing basis.

The MACD histogram declined for the second day. With the increased volatility, the higher volume indicates that the index is near swing high. All the rallies since last October's high are with lower volume, and the declines attracted more volume. Our suspicion is, generally, that the low volumes are not trustworthy.

The broader market breadth is negative, and only the defensive Pharma and IT sectors protected the index from a big negative close. These two sector indices improved the relative performance and have a stronger momentum compared to the broader market. Not a single indicator is giving bearish signals. Only the price is moving mischievously for the last four days.

We may get clear signals today. A negative close will give us the first signs of reversal of a trend. In fact, the current trend is already over-extended. The exhaustion needs to get a confirmation for bearish implications. The weekly close may give some clarity on the trend continuation. Only a close below the 17160-130 zone will give a reversal signal. As long as it forms a higher high bar, it is better to be with the trend.

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