Nifty forms Shooting Star candle

Positive Market Breadth

• 1,645 advances and 906 declines
• 237 stocks hit a new 52-week high
• 175 stocks traded in the upper circuit
• RSI is developing negative divergence

The equities witnessed a volatile session on the new-year day. After hitting a new lifetime high, the index closed at the previous day’s low. NSE Nifty gained just 10.50 points and closed at 21,741.90 points. Bank Nifty and FinNifty were the losers on Monday with 0.12 per cent and 0.14 per cent, respectively. Nifty Auto also closed with a 0.12 per cent decline. Nifty Media is the top gainer with 1.78 per cent. PSE, FMCG, and IT indices gained over 0.50 per cent. All other sectoral indices closed with modest gains. The India VIX is up by 1.22 per cent to 14.68. The Market breadth is positive as 1,645 advances and 906 declines. About 237 stocks hit a new 52-week high and 175 stocks traded in the upper circuit. IDEA, BHEL, YesBank, and Railtel were the top trading counters today, in terms of value.

On New Year’s Eve, the benchmark index made a new high. After a subdued opening, the Nifty reached a new lifetime high led by the PSUs and IT sector. But the last hour’s profit-taking resulted in a sharp decline of 153.50 points. With this fall, the Nifty has formed a Shooting Star candle. It closed at the last two days’ low. Though the volumes were lower, the price action is bearish. On a lower timeframe, it registered a failed breakout. The decline in the banking and financials led to this failure. On a daily chart, the RSI is developing negative divergence. The MACD is about to give a bearish signal. The last two days’ price action clearly indicates exhaustion. A decisive close above 21,780 will be positive now, though the highs at 21,834 points. But a close below 21,681 is negative and will confirm the weaker signals. As stated earlier, the previous breakout level 21,593 is now a crucial support. Below this, it can test the 20DMA of 21,193 points. For now, it is time to stay away from the long positions. The market may enter into a counter-trend consolidation, which is desirable after a sharp rally. If a declined with an added distribution day, it will confirm the counter-trend. During this consolidation, expect some sharp bounces. So, it is important to have strict stop losses.

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