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Focus on high relative strength stocks

Nifty declined below Anchored VWAP and breakout level; We can consider this a failed breakout if it sustains below the 17,800 level today; RSI is almost at the doorstep of the neutral zone again

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The fresh week opened with a strong bearish note. NSE Nifty declined sharply as the IT stocks collapsed. The index closed at 17,706.85 with 121.15 points or 0.68 per cent decline. The Nifty IT index is down by 4.71 per cent. The Nifty Pharma and FinNifty declined by 0.60 per cent and 0.14 per cent. The FMCG index is the top gainer with 1.03 per cent. The Energy, Auto, and Metal indices also gained by over half a per cent. The Advance-Decline ratio is at 1.03. About 69 stocks hit a new 52-week high, and another 69 stocks traded in the upper circuit. Infosys, HDFC Bank, and ICICI Bank were the top trading counters in terms of value.

he IT stocks dragged the headline index. The opening losses were recovered by the end of the day. The Nifty traded in the first hour’s range for the day. It has formed an open high candle, which is called a bearish belt hold. It also formed a bearish engulfing candle. After hanging a man candle big bearish candle, is not a good sign. These two patterns signify that the market has formed a short-term swing high. Today’s price action covered the previous four days of the move. As the Nifty moved in 289 points range on Monday, expect an inside bar action on Tuesday. Even IT stocks also may trade in the sidelines. The Nifty has declined below the Anchored VWAP and breakout level. We can consider this a failed breakout if it sustains below the 17800 level tomorrow. The RSI is almost at the doorstep of the neutral zone again. The MACD Histogram has declined for the second day. The Stochastic oscillator has given a fresh sell signal in an extremely overbought zone, which is bearish. But, the bears need to dominate with fresh selling pressure to take control of the market. As mentioned above, the 17,700 points will act as crucial support for tomorrow. Only above 17800 will be positive and will resume the upward movement. The stock-specific action will continue. Focus on high relative strength stocks and avoid aggressive position size.

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

T Brahmachary
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