Nifty forms Bearish Engulfing

With the Reliance 5.7 per cent rally, the market was able to close in the positive territory. The NSE Nifty is up by 121.20 points or 0.70 per cent on Thursday. Banks, Financial Services, and the Auto indices were the only losers in market. The Nifty Realty is the top gainer with 1.95 per cent. The Media, Infra and Pharma indices are up by 1 to 1.5 per cent. All other sector indices are able to register moderate gains. The broader market breadth is positive, as 1291 advances and 694 declines. About 92 stocks hit a new 52-week high, and 220 stocks traded in the upper circuit.

The equity market has clearly given bearish signals. On a monthly chart, the benchmark index closed below the prior month low and formed bearish engulfing. It formed a lower high lower candle after April. This is the third such candle since the rally from April 2020. On a weekly chart, the Nifty closed below the prior swing low. Though it breached the rising channel support, On Monday, it is able to move above the support. The benchmark index is trading below the all key moving average. The 5 EMA acted as resistance for the second successive day. The index is failed to close above the prior day high after a short-covering bounce on Tuesday.

With the Reliance six per cent rise and the expiry trades, the Nifty ended in positive territory. The 38.2 retracement level (17595) and the prior day high 17600 are important resistance zones. A close above 17600 will be a positive technical factor for the day, and it can test the 50 per cent retracement level (17713), and the 61.8 per cent retracement level (17830) are the next targets. The Nifty, already made with two lower tops and lower bottoms is a bearish sign. Unless it closes above the prior swing high of 18210 we cannot be bullish for short to medium term. At least it should be out of the downward channel with the highest volume. The FIIs sold Rs 23,037.98 crores this month. Last month also they sold Rs 25,572.19 crore, indicates a huge profit booking. As there are only three trading sessions in this month, the Nifty failed to close at least above the 17672. Otherwise, we can assume that the 18604 is the intermediate top.

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