Keep stop losses to lock profit

The defence sectors like FMCG, IT and Financial Services stocks led the market rally on Wednesday. The benchmark index gained 159 points or 0.91 per cent. The FMCG is the top gainer with 1.36 per cent. The Nifty IT, FinNifty gained by 1.20 per cent, 1.14 per cent respectively. The Auto and Energy indices are down by 0.55 per cent and 0.43 per cent, respectively. All other indices gained by less than 0.90 per cent. The India VIX is down by 1.37 per cent to 12.42. About 63 stocks hit a 52-week high, and 229 stocks traded in the upper circuit. HDFC Bank, ICICI Bank, and Reliance were the top trading counters today in terms of value.

The Nifty rallied higher for the fourth successive day. It closed above the 50DMA on a higher volume than the previous day. It also closed above the 200DMA and 200 EMA. Now, these three moving averages are at a confluence point. It also cleared the 61.8 per cent retracement of the prior swing. It almost tested the channel resistance line. On an hourly chart, the index has made higher highs candles. But after the first hour, volume declined, which is a concern and raised doubts about the rally.

The other concern is that the India VIX is down to 12.42 is the lowest level after March 3. Even the Implied Volatility also declined to 10.82, which is negative. Normally, the VIX has an inverse relationship with the benchmark index. Importantly, the Nifty has closed near the channel resistance, and it met all the measured targets. Any further extensions of a rally will attract a massive profit booking. Even though the index has not given any weaker signals, the fact is that it never closed positively for four consecutive trading sessions since the 1st December high. As projected earlier, targets of 17500-17590 were achieved. Now, a close above 17592 continues the rally towards the previous high of 18,000 after one or two days of decline. On the downside, a close below the prior day's low will be negative. The nature of these declines is crucial for a directional view. The RSI is still below the strong bullish zone. MACD shows bullish momentum. As the first weekly expiry this financial year, the long weekend may result in the profit booking. Keep the stop losses to lock the profit.

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