Nifty forms strong bull candle on high volume
A close above 17640 and 17766 zone of resistance, will confirm the two-and-a-half-months long downtrend reversed
The domestic stock market inched higher to the previous swing high. The broader market participation is pushed up the benchmark indices. The NSE Nifty gained by 271.65 points or 1.57 per cent and settled at 17625.70. The Bank Nifty rallied 2.65 per cent, is the top gainer on Monday. Barring Nifty Pharma, the other sectoral indices ended with over one-two per cent gains. The Pharma index is down by 0.47 per cent. The VIX is also up by 1.42 per cent. The market breadth is positive, as 1571 advances and 516 declines. About 308 stocks traded in the upper circuit, and 198 stocks hit a new 52 week high.
The Nifty has tested the prior swing high. Importantly it has retraced 55 per cent of the current downtrend. The general technical analysis principle is that a bear market correction should not exceed 61.8 per cent retracement level, currently at 17766. A close above 17640 and 17766 zone of resistance will confirm the two, and half month long downtrend has reversed. Above this zone, we call the recent 11 per cent correction is only a bull market correction, not a bear market. As mentioned earlier, a close above the prior swing high will indicate the reversal. Another important price action today is, the Nifty has decisively broken out of a downward channel. And it formed a strong bull candle with a higher volume than the previous day.
The index also closed above the 50DMA. The positive directional momentum indicator +DMI has crossed the -DMI is another positive signal for the market. The RSI moved above the two prior swing highs. If the 50DMA starts flattening or turning upside down, the market will give a clear and decisive bull signal. But, there are a few concerns about the ongoing up move. The volume is still below the average. There is massive put selling has been witnessed. The PCR has already reached an extreme level of 1.61. The Stochastic oscillator has been in an extreme overbought condition for the past four days. The current upswing is 10 sessions old.
Generally, the short-term swings are limited to 8-10 sessions. The Open Interest (OI) is not so great when the market is up by 1.5 per cent. The at the money implied volatility is higher side at 17, which is highest in the recent time. So, it is better to be cautiously optimistic as long as it trades above the 17354 or a decline below 50DMA.
(The author is financial journalist, technical analyst, family fund manager)
