It's time to be cautious

With a profit booking at higher levels, the benchmark indices declined today. The Nifty closed at 15,030.15 with 77.95 points decline.

The Nifty pharma index up by 1.22 per cent, and the realty index gained about 2.15 per cent. The smallcap-100 index out-performed with a 0.58 per cent upside move. The BankNifty and the FinNifty declined by 0.70 per cent and 0.98 per cent, respectively.

The Nifty breadth is negative as 29 of 50 stocks declined. Overall market breadth is positive as 1,069 advances and 833 declines. Over 150 stocks hit a new 52 week high, and 150 stocks hit the upper circuit today. India VIX is almost flat at 19.3175.

The suspicion about the low-volume breakout and a follow-through day, in a tight range has resulted in a profit booking. It failed to move above the previous day high and formed a bearish candle, shooting star at the swing high.

In a normal condition, Tuesday's breakout is a more powerful one. But the Nifty closed below the previous day low and near to the day's low signalled the caution.

Now the question is, will it fill the Tuesday gap? In any case, a decline below 14,938-14,800 zone is nothing but a failed breakout. In such a case, this could a fourth failed breakout. As mentioned yesterday, the divergence in RSI on a lower time frame given an early caution signal.

Even on the daily chart, the RSI came back into the channel. On a 75-minute chart, the MACD has given a sell signal in the last bar. Interestingly, it failed to move the previous bar high all day. This shows the weakness. The Open interest and volume, too, has indicated the unwinding of the positions. Even today, both are not improved.

In fact, the derivative volume further declined. A gap down opening or a close below the 15,000 will also give a bearish signal. In the bull case scenario, The Nifty at least must close above the 15,138. With current price action, it is time to be cautious.

(The author is financial journalist, technical analyst, family fund manager)