The market lost momentum after a strong rally. The Nifty closed in a negative zone after opening with a spread of 60 points. Finally, it closed 19 points or 0.12% lower at 16240.30. The Nifty Pharma and FMCG indices closed with more than one percent gain. With the exception of the PSU Bank Index, all indices closed with less than 1% losses. The broader breadth of the market is positive as 1151 advances and 920 declines.
But the broader magnitude of the Nifty 500 index is negative. 22 stocks hit a new 52-week high and 215 stocks traded in the upper circuit. Reliance, Ruchi Soya and Bharti Airtel were the main trading posts today. The Nifty failed to get a tracking day. It also failed to close above 16297, which is a 23.6% retracement level, as discussed on Tuesday. After a massive surge, the benchmark failed to sustain momentum. Even the broader market indices closed negatively, indicating that market strength is weak. The magnitude is not so great, although it is positive.
The index opened above the previous day’s high and almost touched 16,400. The positive bias was limited in the first hour, then it slowly declined into the negative zone. On an hourly chart, not even a single bar is closed above the previous bar. It looks like a counter-trend, but we won’t get confirmation until a day later. The negative close does not provide the confidence to go long.
After two days of strong rise, the RSI flattened again. The MACD histogram on an hourly chart shows declining bullish momentum. The distance between the index and the 20DMA fell from 6.4% to 2.38%.
Either way, if the frontline index closes above 16297, the 20DMA (16636) and 38.2% retracement level will act as a strong resistance area. Technically, as long as the previous day’s low is protected, we have to do it with a positive bias. As the weekly expiry is in place, we have to be a bit careful with position sizing and risk management. There are a large number of short overlaps built into the system. A bounce from short coverage will hurt traders.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)