Nifty forms Hanging Man candle

The Hanging Man candle at the top is a sign of exhaustion. Even though no weaker signals are available, the higher volatility at the lifetime high and the high selling volume are the characteristics of the topping formation

In a most volatile session in recent times, NSE Nifty traded in the over 315 points range and registered yo-yo movements. Finally, it closed at the highest-ever level. The previous high close is at 22,474.05 on March 6. On Thursday, Nifty gained by 80 points or 0.36 per cent and closed at 22,514.65 points. Nifty Private Bank index and Nifty IT are the top gainers with 1.12 and 1.08 per cent, respectively. The Nifty Oil and Gas and PSU Bank indices were the top losers with 1.37 per cent and 0.70 per cent.

All other sector indices were closed with moderate gains or declines with less than a per cent. The India VIX declined by 1.34 per cent and closed at 11.22. The market breadth is positive as 1,671 advances and 941 declines. About 149 stocks hit a new 52-week high, and 259 stocks traded in the upper circuit. HDFC Bank, ICICI Bank, Kotak Bank, and Reliance were the top trading counters on Thursday in terms of value.

One of the most dramatic price movements seen in Thursday’s trading session was that the Nifty opened with a 157.45 huge gap up and declined sharply by 315.20 points from the day’s high. Interestingly, it recovered by 276.40 points during the day. These dramatic moves on a derivative expiry triggered the stop losses on both sides. At the end of the day, the Nifty has formed a hanging man candle. The most curious point is that the benchmark index has formed a new lifetime high at 22,619 points; it failed to close above the previous high of 22,529.95 points and also below the previous day’s high. This close gives us some suspicion about the sustenance of the trend. The volumes were higher than the previous three days; most of them were recorded in the first and the last hours, in 315 points declined.

The Hanging Man candle at the top is a sign of exhaustion. Even though no weaker signals are available, the higher volatility at the lifetime high and the high selling volume are the characteristics of the topping formation. It closed below the open, too.

The RSI is above the 60 zone again. The MACD histogram shows an increased bullish momentum because of a positive close. The reason to suspect Thursday’s bullish close is that the Relative Strength line is still declining and below the 21EMA, compared to the broader market index, Nifty-500. The index’s heavyweight, HDFC Bank, has contributed 76 points to the index, which is the main reason for Thursday’s positive close. In this scenario, we can’t be aggressive on both sides. The intraday swing will hurt the trading decisions. Stay calm and sideline for some time. Continue the positional longs as long as they are above the stop losses.

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