Nifty closes on a positive note, apply a neutral strategy with delta neutrality

With the recovery in some of the heavy-weight stocks, the benchmark indices closed positively for the second day. The Nifty gained by 73.85 points or 0.34 per cent and closed at 21618.70. The Nifty Media index is the top gainer with 3.47 per cent. The Metal and IT indices gained over 0.50 per cent. The CPSE and PSE indices declined by 1.02 per cent each.

The FMCG, Realty, and PSU Bank indices were also closed in the negative zone. All other sectoral indices up by less than half a per cent. The India VIX declined by 2.21 per cent to 12.97. The market breadth is positive 1350 advances and 1206 declines. About 186 stocks hit a new 52-week high, and 144 stocks traded in the upper circuit. Olectra, Yes Bank, Cochin Shipyard and ZEEL were the top trading counters today in terms of value. As forecasted on Tuesday, the Nifty tested the 20 DMA and bounced by taking the support.

However, it moved below the key support level of 21500. As stated earlier, the bears failed to drag the market for the third consecutive day. Forming a third consecutive bearish candle is necessary for a confirmed decisive downside move. In fact, the Nifty gained for the second day but was still below Monday’s high. It has formed a third lower high and lower low candle.

The volumes were receding for the last four days. The 20 DMA of 21460 and Monday’s high of 21764 will be the crucial support and resistance zone for the near term. The RSI took support at 60 and sustained in the bullish zone. In any case, if the Nifty closes below 21727 by the end of the week, it will form a bearish engulfing candle.

A Doji candle followed by a bearish engulfing candle confirms the reversal. So, it is important for us to keep an eye on this week’s close. As the expiry on cards, the index may experience a highly volatile session within the range. So, it is better to apply a neutral strategy with delta neutrality.

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