Time To Stay Neutral As Consolidation More Likely

After an euphoric move, equities experienced the profit booking. The NSE benchmark index Nifty declined by 331.5 points or 1.39 per cent, closed at 24,578.35 ponts. The Nifty India Defence sector index is the top gainer with 4.11 per cent. The PSU Bank, Microcap, Media, and Pharma indices gained over one per cent. The Nifty IT index is the top loser with 2.42 per cent. The Nifty Service, FMCG, Consumption, Infra and FinNifty declined by over one per cent. The India VIX is down by 1.05 per cent to 18.20. The Market breadth is positive as 1,948 advances, and 937 declines. About 43 stocks hit a new 52-week high, and 199 stocks traded in the upper circuit. BSE, BDL, Swiggy, KFintech, and HDFC Bank were the trading counters today, in terms of value.

As we expected, the Nifty retraced over 38.2 per cent of the previous session’s move. After forming a new high at 24,974, it declined sharply by over 400 points. As the fundamental factors did not support the rally’s continuation, it is almost back in the consolidation zone. The index has formed an inside bar. It also registered a fresh distribution day as the volumes were higher than the previous day. The Nifty tested the 2nd May high, which is a breakout level. In any case, it closes below 24,434 on Wednesday, expect the 200DMA will be tested. Before that, the 20DMA is at 24,138. Interestingly, even after a 14.86 per cent rally from the 7th April low, the 200DMA is still in the downtrend. As it has already recovered 70 per cent of the decline, in a faster manner, expect the consolidation for some time. This session’s high of 24,973-857 will act as a resistance zone. As long as it trades below this zone, try to be neutral. If the index closes below the 200DMA of 24,046, the short positions will open. The Nifty may trade in the last two days range for another 5-8 days. It is the time to stay neutral to positive.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)