Nifty may retest breakout level before further rally
As the extension target was met, the index is more likely to enter into a counter-trend consolidation; hourly MACD histogram shows a decline in bullish momentum
The frontline indices rallied to new highs with another strong move. NSE Nifty closed at 19,322.55 with 133.50 points or 0.70 per cent gain. The Oil & Gas and Energy indices were the top gainer with 2.26 per cent and 1.31 per cent. FMCG and Metal indices also gained over a percentage point. The Bank Nifty and FinNify gained by 0.92 per cent and 0.98 per cent, respectively. The Nifty Pharma was down by 1.11 per cent, and the IT index fell by 0.47 per cent. The Auto index also declined by 0.27 per cent. The market breadth is positive as the advance-decline ratio is at 1.30. About 167 stocks hit a new 52-week high, and 85 stocks traded in the upper circuit. HDFC twins, Reliance, and ICICI Bank, were the top trading counters on Monday in terms of value. Reliance and ITC contributed 82.51 points in Monday’s Nifty gain.
The ferocious bulls continued to run to the new highs. The Nifty rallied another 133.5 points and almost met the 38.2 per cent extension target. With four successive positive gaps and the over-extension of the rally may consolidate for some time anytime from now. The Nifty opened and closed above the upper Bollinger band is an indication of an extended rally. The daily RSI is above the 75 range, and the hourly RSI is above 82 and struggling to sustain at higher levels. After the first hour of a strong upside move, the index consolidated within the range. Because of this, the hourly MACD histogram shows a decline in the bullish momentum, even though the index closed at the day’s high. The Nifty gained by 755 points or 4.04 per cent from the last Monday’s low.
Generally, after an impulsive move, the price will take a rest. On this massive rally, the breadth in the index and F&O segment is not encouraging. The index breadth is 1:1. In the F&O segment, 84 stocks witnessed a short build-up, and 76 stocks saw a long build-up. In these conditions, out of four gaps, at least two of them may get filled in the near term. In other words, the Nifty may retest the breakout level before further rallying. As the extension target was met, the index is more likely to enter into a counter-trend consolidation. For now, even though there is no shorting opportunity, long positions do not have a favourable risk-reward ratio. Stay in sideways, and apply neutral strategies.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
