There is a lot of energy in the stock market. Everyone seems to be losing their minds because of the continued pumping of money from the FIIs . We all understand that the current rally in the index is backed by sentiments and not by economic improvements and this makes the rally unsustainable. Now, I am in no way suggesting that the bull run is over. I am very bullish for the long term, however in the intermediate term, I believe there is a possibility of a set back, or a ‘correction’.
Let’s take a look at the 1 hour chart of Nifty.
Nifty 50 1 hour chart, showing weakness
In the above chart two trendlines are visible (I would’nt call it a channel since the lines are not parallel) . In the last couple of days, we see that the trendlines have been violated. The resistance trendline was violated in the sense that the index turned lower without touching it, and the support trendline got violated by an outright breakdown . Lets take a closer look in the chart below.
There are a few things that demand our attention in this chart:
Nifty failed to touch the resistance trendline on 8th Aug, and turned lower irrespective on 9th Aug.
Nifty breached the support trendline on 10th Aug just before closing , however on 11 th Aug it bounced back higher from the 200 SMA closing at the trendline, trapping the bears.
On 12th Aug, when Nifty opened, a strong surge took Nifty higher on account of evident short covering after which a lull fell on the index and the rest of the day was spent in consolidation.
RSI , our momentum indicator, has picked up the sentiments correctly in my opinion as it maintained itself below the level of 60 signalling weakness.
The very last candle on the chart is a red candle with a small upper wick, and this hints to us that the market was weak as it closed and had been open, weakness would probably have continued.
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It will be fair to conclude that given the movement witnessed on Friday (12th Aug) the bulls are not very enthusiastic but the bears too are rather timid given the burns they witnessed on 10th and 11th August.
The major reason behind the surge in Nifty was, I believe, the result of the banking major, SBIN which was announced at 11 am on Friday.
Talking about the way ahead, I do not want to sound overly confident by stating outright that Nifty will turn lower as I have my own inhibitions but the RSI indicators does show weakness in the prices and the rest remains for time to validate. You can contact me via email at email@example.com for feedback, suggestion, criticism or advise on anything Technical Analysis!