Nifty above counter-trend consolidation

NSE Nifty scales a new all-time high and sustained for a very short period. It gained by 2.35 per cent last week. BSE Sensex is up by 1.96 per cent. The broader indices, Nifty Midcap and Smallcap outperformed by 2.69 per cent and 5.64 per cent, respectively. On the sectoral front, the PSU bank index is up by 11.47 per cent, and the Energy index gained by 8.16 per cent. On the flipside, the Media and FMCG closed down marginally by 0.26 per cent and 0.17 per cent, respectively. The India VIX is up by six per cent to 14.70. Last month, the FIIs sold Rs35,977.87 crore, and the DIIs bought Rs26,743.63 crore worth of equities. During the last two sessions, the FIIs sold Rs1,808.89 crore, and the DIIs bought Rs3,335.65 crore worth of equities.

The benchmark index Nifty ended its decline and closed above the prior week’s high. As mentioned earlier, the bears failed to pull down the index for three consecutive weeks, which was needed for a decisive downtrend. Even on the daily time frame, the index has not declined by more than three days. For a downtrend, the index has to form a lower swing low, below the 21,137 points. Until then, the market status will ‘uptrend under pressure’.

In an expected move, it formed a new lifetime high for a brief period. It declined sharply by 288 points from the day’s high and formed a shooting star candle. In this sharp side move, it filled the 17th January gap area. Finally, it settled above the counter-trend consolidation’s resistance. Interestingly, the counter-trend consolidation looks like a channel or flag. It has broken out of this flag pattern by closing above the resistance area. The higher volumes confirmed the breakout. One way this breakout is positive is to form a bullish bias. But on the other hand, the intraday price structure is unsuitable for taking aggressive long positions, as the index is still within the rising channels. Only a decisive breakout of channels will lead to a strong uptrend.

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