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Investors wary of unusual price behaviour

It is better not to venture with an aggressive position size, an extreme negative breadth for the last 3 days; Below average volume is a concern

Investors wary of unusual price behaviour

With increased volatility and the daily range, NSE Nifty hit another lifetime high. The Banks and Financials led Wednesday’s rally. The Nifty gained by 117.75 points or 0.53 per cent and closed at 22,474.05 points. In the morning session, only the Bank Nifty and FinNifty were positive, and later, the IT and Pharma sectors went back to green. The Bank Nifty, FinNifty, IT, and Pharma indices were up by 0.67 per cent to 0.79 per cent. The Media index is the top loser with 2.54 per cent, followed by Realty with 1.34 per cent. The Small-cap index is down by 1.96 per cent, and the Mid-cap declined by 0.52 per cent. The market breadth is extremely negative as 2,003 declines and just 601 advances. About 91 stocks hit a 52-week low, and 266 stocks traded in the lower circuit. Motherson, HDFC Bank, ICICI Bank, and Tata Chemicals were the top trading counters on Wednesday in terms of value.

A massive move engulfed the previous day’s range, and the Nifty registered another new high and a new high close. The banks and financials primarily led the rally. As we expected, the daily trading range was increased, and the down and upswing triggered the stop loss on both sides. The private sector banks and some of the large-cap stocks recovered sharply in the afternoon session, which resulted in a massive upmove of 272.85 points from the day’s low. This massive move is supported by the rising volume in the last three hours.

This unexpected move after two bearish candles surprised everyone. The momentum suddenly picked up. The RSI is back to above 63.6 zone, and the MACD histogram shows a strong momentum. Though the index moved below the prior, rising channel line and 8EMA, it sharply bounced from the support. As mentioned earlier, there is a weakness in the index and an extreme negative breadth for the last three days, below average volume are some concerns. Apart from this, the broader market indices, Mid-cap and Small-cap indices, are making lower highs. The focus has shifted to underperformed large-caps clearly. We reiterate that the large-caps will protect the market from a bigger fall. The daily range will increase further, and it will be difficult to trade on a very short-term basis. The unusual price behaviour will confuse the trader. It is better not to venture with an aggressive position size.

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

T Brahmachary
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