Nifty forms positive Hammer candle

The benchmark indices dramatically recovered from the day’s low with the support of IT and FMCG sectors and Reliance. The NSE Nifty closed with just 6.25 points gain at 19,434.55 points. The Nifty IT index is up by 0.68 per cent. The Media and FMCG indices gained by 0.87 per cent and 0.68 per cent. The Nifty Metal index is the top loser with 2.14 per cent. The PSU Bank, Realty, and Small-cap indices declined by over 0.7 per cent. All other sector indices are down by less than half per cent. The broader market breadth is negative as the advance-decline ratio is at 0.62. About 94 stocks hit a new 52-week high, and 87 stocks traded in the lower circuit. HDFC Bank, Adani Enterprises, and ICICI Bank were the top trading counters on Monday in terms of value.

The Nifty recovered over 200 points from the day’s low and closed on a flat to a positive note. Since the March low, the index never extended the losses beyond three days. It took support at 50DMA and closed above the prior swing low of 19,300 points, though it breached on an intraday basis. The index has formed a hammer candle, which is positive.

The recovery is led by Reliance, Infosys, HUL and ICICI Bank, together contributing about 45 points to the index. Now the 50DMA of 19,380 points has become an important support. The Monthly VWAP is at 19,535 points and may act as immediate major resistance. If the Nifty closes above Monday’s high of 19,465.85 points, it is positive and will continue the recovery efforts. The 20DMA resistance is at 19,643 points.

There is no positive change in the indicators. The RSI is flattened, and the MACD line declined further. The Histogram shows an increased bearish momentum. The Elder impulse system has formed the second bearish bar in a row. The Relative Strength is poor and declined further, which means the internal strength is still weak. The KST and the TSI indicators have been in a bearish set-up. The volatility index, India VIX, is up by 4.10 per cent is another caution for the bulls. It is better to wait for a break below 50DMA for an aggressive bearish view. Stay neutral as long as it trades below the 20DMA.

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