Indicators Confirm Upside Reversal

The benchmark index has completed the Category-1 correction and registered a trend reversal. Only below the recent low of 23263, there will be a possibility of Categoty-2 correction, which is more than 20% correction from its all-time high. Till then be with optimistic view

NSE Nifty made a clear trend reversal and ended its downtrend with a strong rally. The benchmark index gained by 240.95 points or 0.98 and closed at 24709.40. The Nifty IT is the top gainer with 1.95 per cent, followed by the Services index with 1.17 per cent. The Consumer Durables also gained above one per cent. The Realty and PSU Bank index closed lower by 0.25 per cent and 0.12 per cent, respectively. The India VIX is up by 0.54 per cent to 14.52 per cent. The market breadth is almost neutral as 1483 advances and 1,304 declines. About 109 stocks hit a new 52-week high, and 133 stocks traded in the upper circuit. BSE, HDFC Bank, CDSL, Zomato, and Swiggy were the top trading counters today, in terms of value.

On a 562 points volatile day, Nifty decisively broke out of an inverted head and shoulder pattern with a higher volume in the last five days. Just before the RBI monetary policy, the market participants expect positive outcomes like increasing liquidity and positive commentary. The Nifty has retraced 50 per cent of the fall, and it rose by 6.85 per cent from the recent bottom. It is decisively above the 50DMA. With this, the benchmark index has completed the Category-1 correction and registered a trend reversal. Only below the recent low of 23263, there will be a possibility of Categoty-2 correction, which is more than 20 per cent correction from its all-time high. Till then be with optimistic view.

The inverted head and shoulders pattern breakout target is at the 3rd October gap area resistance of 25,739 points. Before achieving this target, the index may face resistance at 25,126 points, which is a 61.8 per cent retracement level of the prior fall. Many of the large-cap stocks formed a base and broke out. The heavyweight in the Nifty HDFC Bank is at a new lifetime high. TechM and HCL Tech hit new highs. The Infosys is almost at the new. The Bank Nifty is just one per cent away from the all-time high.

The RSI shifted its range into a strong bullish zone, and the MACD line is above zero. The 20DMA turned on the upside, and the Bollinger band began to expand. These major indicators confirm the reversal on the upside. For now, as long as the index trades above the 20DMA of 24044, be with a positive bias. A weekly close above the 24,770 is further positive for the directional bias. The last hour’s 363 points move with a massive volume is unusual before the event risk is a common phenomenon. From now on, moving below 20DMA has a low probability. Focus on the stocks making new highs with high relative strength.

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