What’s up ahead: Expect choppy trade as Nifty50 is signalling a trend reversal
By Milan Vaishnav, CMT
The domestic market headed nowhere on Wednesday and the benchmark Nifty50 ended flat, virtually unchanged with nominal gains of 0.75 points or 0.01 per cent. The indices traded in a capped range with very narrow movement on either side for most part of the day and reacted with extreme volatility to RBI’s monetary policy review in the second half after the central bank kept the policy rate unchanged.
As we had anticipated, the monetary policy review remained a non-event and the Nifty remained broadly in a defined range.
On Thursday, we expect the market to see a tepid start and witness a ranged movement with intermittent downward pressures. While continuing to trade in the overbought zone, the Nifty50 continues to remain vulnerable due to profit taking at higher levels. The 8,820 and 8,910 levels will act as immediate resistance for the market while supports will come in much lower at 8,710 and 8,625 levels.
The Relative Strength Index or RSI on the daily chart stood at 71.6313 and it does not show any bullish or bearish divergence or any failure swing and is, therefore, neutral. The daily MACD remains bullish as it trades above its signal line but has started to flatten its trajectory.
On the candles, a long lower shadow occurred. Apart a small upper body that this candle contains, it also looks like a Hanging Man formation. Such formation after a engulfing line that occurred in the previous session increases the possibility of the upmove being halted manifold. However this needs further confirmation.
Nifty February futures have added over 1.99 lakh shares or 0.93 per cent in open interest. This figure, singularly, is not large enough to indicate any major shift in sentiment of the market participants.
Coming to pattern analysis, the Nifty50 has been chasing the fast widening Bollinger Band upper channel over the past couple of days. While doing so, it has continued to trade in the overbought zone. As mentioned often, the lead indicators are now overstretched and the overall structure of the charts looks like a greedy chase, which is fast getting unhealthy.
Given the stable and buoyant structure on the weekly charts, the corrective dips on the daily chart look overdue and this would be healthy for the market as it prepares itself to move up again. Overall, we do not see any runaway rise in the market soon. The upper levels of 8,820-8,840 will continue to resist the upmove.
Though a sustainable upward move is not expected with the current structure of the charts, any rally should be used vigilantly to protect current profits and positions. In the given overbought scenario, individual stock-specific performance will hold key to successful participation in the market. We reiterate an extremely cautious outlook for the market.
(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. Contentions made in this article are mere observations. Investors should consult their financial advisers before taking any positions based on these remarks. Views expressed are the author’s own do not represent those of ETMarkets.com. The author can be reached at milan.vaishnav@equityresearch.asia)
The domestic market headed nowhere on Wednesday and the benchmark Nifty50 ended flat, virtually unchanged with nominal gains of 0.75 points or 0.01 per cent. The indices traded in a capped range with very narrow movement on either side for most part of the day and reacted with extreme volatility to RBI’s monetary policy review in the second half after the central bank kept the policy rate unchanged.
As we had anticipated, the monetary policy review remained a non-event and the Nifty remained broadly in a defined range.
On Thursday, we expect the market to see a tepid start and witness a ranged movement with intermittent downward pressures. While continuing to trade in the overbought zone, the Nifty50 continues to remain vulnerable due to profit taking at higher levels. The 8,820 and 8,910 levels will act as immediate resistance for the market while supports will come in much lower at 8,710 and 8,625 levels.
The Relative Strength Index or RSI on the daily chart stood at 71.6313 and it does not show any bullish or bearish divergence or any failure swing and is, therefore, neutral. The daily MACD remains bullish as it trades above its signal line but has started to flatten its trajectory.
On the candles, a long lower shadow occurred. Apart a small upper body that this candle contains, it also looks like a Hanging Man formation. Such formation after a engulfing line that occurred in the previous session increases the possibility of the upmove being halted manifold. However this needs further confirmation.
Nifty February futures have added over 1.99 lakh shares or 0.93 per cent in open interest. This figure, singularly, is not large enough to indicate any major shift in sentiment of the market participants.
Coming to pattern analysis, the Nifty50 has been chasing the fast widening Bollinger Band upper channel over the past couple of days. While doing so, it has continued to trade in the overbought zone. As mentioned often, the lead indicators are now overstretched and the overall structure of the charts looks like a greedy chase, which is fast getting unhealthy.
Given the stable and buoyant structure on the weekly charts, the corrective dips on the daily chart look overdue and this would be healthy for the market as it prepares itself to move up again. Overall, we do not see any runaway rise in the market soon. The upper levels of 8,820-8,840 will continue to resist the upmove.
Though a sustainable upward move is not expected with the current structure of the charts, any rally should be used vigilantly to protect current profits and positions. In the given overbought scenario, individual stock-specific performance will hold key to successful participation in the market. We reiterate an extremely cautious outlook for the market.
(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. Contentions made in this article are mere observations. Investors should consult their financial advisers before taking any positions based on these remarks. Views expressed are the author’s own do not represent those of ETMarkets.com. The author can be reached at milan.vaishnav@equityresearch.asia)
