Nifty forms Hammer candle
It indicates reversal after significant correction; The positive divergence in the hourly chart is still valid; Hourly MACD is about to give a bullish signal
Key Triggers
♦ Nifty opened with a gap down, but recovery failed to fill the gap
♦ 83 stocks hit a new 52-wk high
♦ 82 stocks traded in the upper circuit
♦ Daily RSI is exactly at 40 level
The equities declined for the second consecutive day. NSE Nifty is down by 92.65 points of 0.47 per cent and closed at 19,436.10 points. The PSU bank index is the top loser on Wednesday with 2.83 per cent. The Nifty Pharma, Realty, Media, Auto, and Metal indices were down by over one per cent. Only Nifty IT and FMCG indices closed positive by 0.30 per cent and 0.22 per cent, respectively. All other indices also declined sharply. The India VIX is also down by 1.12 per cent. The breadth is negative today. About 83 stocks hit a new 52-week high, and 82 stocks traded in the upper circuit. Three Private sector banks, HDFC Bank, Axis Bank, and ICICI Bank, were the top trading counters today in terms of value.
The Nifty recovered over 100 points from the day’s low and closed almost at the opening level. It formed a Hammer candle. It bounced from the lower Bollinger band. If today’s low is protected, expect a decent bounce from here. It opened with a gap down, but the recovery failed to fill the gap. Normally, the Hammer candle indicates the reversal after significant correction. The positive divergence in the hourly chart is still valid. The Hourly MACD is also about to give a bullish signal.
Only If the Nifty fails to hold today’s low of 19,333 points it can test the major low of 19,223 points. The daily RSI is exactly at the 40 level. A decline below this level means the index entered into the bearish zone. The MACD line is already below the zero line. The Nifty is now 0.89 per cent below the 50DMA and 1.77 per cent below the 20DMA. As stated in the previous technical note, the means reversion is completed.
Now, the price behaviour is important from now. If the Bollinger bands turn downside, (currently) moving horizontally, in a contractions mode) expect a sharp downside move. The higher volume declines are the worry for now. If the distribution picks up, selling pressure across the board will intensify. As the conviction is on the long side in all sectors, and no sector is in a position to lead the market, it is better to avoid building a fresh portfolio.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
