Careful! Clear signs this market is losing momentum; limit exposure
Nifty has been posting gains, but there is a loss of momentum in market behaviour.
Nifty has been posting gains, but there is clearly a loss of momentum in market behaviour. Apart from that, weekly options expiry is due on Thursday, and this will keep the market volatile. Strike price 11,500 had the highest build-up of Call open interest, and this may pose resistance unless this level is taken out convincingly.
On Thursday, the market is likely to see a flat start and the 11,500 and 11,585 levels will act as Key resistance, while supports will come in at 11,400 and 11,310 levels. The Relative Strength Index (RSI) on the daily chart stood at 58.07; it remains neutral and does not show any divergence against price. The MACD has shown a positive crossover, and it is a bullish signal as Nifty trades above the signal line. The PPO has just turned positive. A Doji has emerged on the candle, signaling a high degree of indecisiveness among market participants. Such a formation, if it occurs after an up-move may signal potential loss of momentum in the market.
Pattern analysis of daily charts showed Nifty is trying hard to sustain above the 100-DMA, which stands at 11,404. However, it suffers from a lack of momentum at higher levels. This is evident as all the intermittent up-moves have come from a short covering-fuelled push and the decline in open interest that has come with it.
Even if one were to discount the volatility that weekly options expiry may cause, it gives the same picture. Nifty needs to stay above the 100-DMA level, and any slide below that may send it testing its 200 DMA. Tread cautiously; participate on the upsides of the market but stay vigilant. Heavy exposures should be avoided until a firm directional trend is established.
(Milan Vaishnav, CMT, MSTA, is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)