Traders likely to keep position sizes low

The opening euphoria did not sustain till the end of the day. The Nifty closed at 22,011.95 with 172.85 points or 0.79 per cent gain. Most indices advanced by over one per cent on Thursday, and no sector index closed in negative territory. The PSE index is the top gainer with 3.51 per cent, followed by Realty with 3.00 per cent. The CPSE and Smallcap indices rose over 2.5 per cent. The Metal Midcap, PSU Bank, indices gained by over two per cent. All other sectoral indices were up by 0.64 per cent to 1.85 per cent. The India VIX is down by 7.13 per cent to 12.51. The market breadth was positive as 2056 advanced and 551 declined. About 39 stocks hit a new 52-week high, and 235 stocks traded in the upper circuit. ICICI Bank, HDFC Bank, Reliance, and Infosys are the top trading counters on Thursday in terms of value.

The Nifty opened with a 151-point gap-up after the Federal Reserve’s commentary last night. The index breached the opening hour bar low two hours later and recovered. With the weekly expiry, the index has witnessed sharp intraday moves. The first hour’s massive volumes were not repeated during the day; they receded. The daily volume is higher than the previous day and above the average, which is a positive sign. The index retraced by a 6.18 per cent retracement level and faced resistance. It also tested the 38.2 per cent retracement level. By the end of the day, the index has formed another long-legged, small-body candle. Before closing above the 50 DMA, it took support. Though the index closed above the prior day’s high, the price structure is not convincingly bullish. If the index continues an upside move, the index must close above 22,023 first. Then, it must close at least the 50 per cent retracement level of the downswing, which is at 22,118. Interestingly, the index faced resistance twice during the week. After Thursday’s almost one per cent move, the RSI is still below 50. Even on the hourly chart, the RSI is below 60, which is not a strong bullish. A close above 22,118 may result in an RSI breakout. The MACD shows a mild reduction in bearish momentum. Thursday’s move can be considered as news-driven and the expiration trades. As mentioned above, the index must close above 22118 for an upside move.

As it is a long weekend, with only three trading sessions next week, the traders will keep the position size low. if the index closes below the 50DMA, 21936, again, the downside move will resume. There are only four trading sessions left in this month, and Nifty is forming a long-legged doji candle, which confirms the Jan-March quarter topping formations. Stay light for next four days.

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