Nifty rings warning bells

After a stellar run in the last six trading sessions, Nifty took a breather on Tuesday as it ended the session with a minuscule loss.  

The beginning of the day was pretty much the same old story, which we have been witnessing on D-Street for a while now. Nifty opened the session with a gap-up and went onto register a fresh all-time high of 15,257 levels. However, in the last leg of the trade, a roller-coaster ride was seen as Nifty witnessed a movement of nearly 190 points.  At close, it settled nearly 150 points down from the day’s high at 15,109. 

The broader markets too ended in the red with Nifty Mid-cap and Small-cap losing 0.08 per cent and 0.46 per cent, respectively. India VIX measured volatility of 1.30 per cent.   

The price action of the day formed a small body bear candle with a large upper shadow, which resembles a shooting star pattern. Normally, the formation of a shooting star pattern is viewed as a bearish reversal pattern that typically occurs at the top of an uptrend. However, this pattern requires confirmation. Going ahead, immediate support is placed around the gap area of February 8 (15,014.65-15,041). It would be important to watch out for the price action around these zones as a failure to hold this support could lead to another round of profit booking and it can drag the index towards the levels of 14,865. On the upside, Nifty is likely to face resistance at 15,250, followed by 15,364 levels.   

The 14-period daily RSI continues to show a bearish divergence against the price. Further, the daily stochastic oscillator is in overbought territory but again, there is not a clear sell signal on the price as Nifty did not breach its prior session low. Hence, we cannot take short positions at the current levels as price confirmation is a must. Having said this, we would advise our readers to adopt a cautious approach and suggest not chasing momentum at the current levels.