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Nifty forms a long upper shadow candle

The index has formed a second lower low candle; Stay cautiously positive; Follow the strict risk management

Nifty forms a long upper shadow candle

NSE Nifty closed flat to negative for the second consecutive day. It declined by 18.65 points or 0.08 per cent and closed at 22,434.65 points. The PSU Bank and Small-cap indices were the top gainers with 1.78 per cent, and 1.16 per cent, respectively. The Realty index was the top loser with 2.58 per cent. All other sectoral indices gained or lost by less than a percentage point. The India VIX is declined by 2.40 per cent to 11.38. The market breadth is positive as 1,924 advances and 705 declines. About 132 stocks hit a new lifetime high, and 311 stocks traded in the upper circuit. HDFC Bank, Kotak Bank, Mazdock Ship Builder, and ICICI Bank were the top trading counters on Wednesday, in terms of value.

The equity benchmark index is moving in a trick manner. As the global benchmark indices declined by over a per cent last night, the domestic benchmark index, Nifty, opened below the previous day’s low. But, soon after the opening recovered to the prior day’s high and formed an outside bar. At the end of the day, the index closed marginally lower. For the last two days, the price has been closing lower but not giving any directional signal. The volumes were higher than the previous day. The index has formed a second lower low candle. It tested the 23.6 per cent retracement level of the prior upswing. It also formed a long upper shadow, which looks like a Shooting Star candle, after two indecisive Doji candles. The key technical development is that the RSI has declined below 60 and formed a negative divergence after hovering around 60 for the last two days. The 5EMA acted as support three times in the last five days.

The price looks like a handle formation after a 13-day cup. It is also can be considered a volatility contraction or a squeeze. It may take another 3 - 4 days to break above the prior high in the most bullish case scenario. A decisive close above 22,530 will lead a sharp rally towards 23,150 points. In any case, a close below 22,356-22,336 will be negative for the index. It can test the 20DMA or 38.2 per cent retracement level of the prior trend. For now, we may not get the clear trade in 22,336-22,530 points range. Stay cautiously positive, and follow the strict risk management.

(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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