Nifty forms lower high and lower low candles

The Indian benchmark indices continued to rally for the eighth straight session. NSE Nifty gained another 54.15 points or 0.29 per cent and settled at 18,812.50. The Nifty IT is the top gainer with 2.40 per cent. The PSU Bank and the Media indices are also up by 2.11 per cent and 2.08 per cent, respectively. The Metal index gained by 1.53 per cent and the Realty index advanced by 1.98 per cent. The Pharma, Auto, FMCG, and Energy indices are down marginally by less than 0.40 per cent. The market breadth is positive as 1,157 advance and 755 declines. The Advance-Decline ratio is at 1.59. About 74 stocks hit a new 52-week high, and 92 stocks traded in the upper circuit. HDFC Bank, ICICI Bank and Reliance were the top trading counters on Thursday.

The breakout on the last weekly expiry day continued to new highs. Since November 22, the Nifty has not broken the previous day's low and all the higher high candles. This shows the strength in the trend. Last Friday, it formed a bearish Hanging Man and repeated the same kind of candle on Thursday. As the market is at lifetime highs, when these candles are formed, traders worry about the long positions. But unless these candles get the confirmation for the bearish implications by closing below them, we cannot assume the market is reversing. Even on Thursday, the Nifty has formed a higher high and higher low candle. The market breadth is improved a bit, and the sector rotations are perfectly going on.

But there are some concerns. The VIX is at the lowest, which has an inverse relationship. The RRG momentum is below 100. The RSI entered is in an extremely overbought condition. Importantly, there are only two sectors firmly placed in the leading quadrant. At this juncture, only IT looks promising, with an improved momentum and relative strength. Another technical development occurred on Thursday is that the index has closed above the upper Bollinger band, showing an extension of the trend. It has to come inside the bands in the next few days. On Thursday, it formed lower high and lower low candles and has not closed above the high of the prior hourly high. As stated earlier, only a close below the previous day's high will be negative and the first sign of weakness. So, it is better to be with a cautious approach.

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