Nifty trend for Thursday

Wednesday turned out to be a wonderful day of trade for the bulls on D-Street as Nifty touched a fresh all-time high of 14,666 and ended at a record high at 14,644, up by 0.85 per cent.  

Sectorally, barring Nifty FMCG, all other sectoral indices ended in green with Nifty Auto, Nifty IT, and Nifty PSU Bank registering gains of over 2 per cent each.   

The price action of the day formed a bullish candle and Nifty continued its formation of higher top & higher bottom for the last two sessions. Further, Nifty has retraced 100 per cent of past four days’ corrective move (14,653-14,222) in just two days, indicating rejuvenation of upward momentum. Besides, Nifty has also continued its habit of not correcting for more than 2-3 sessions in a row since September low of 10,790. Interestingly, the last two days of the rally did not attract the volume. In fact, the volume in Nifty Future has been declining for the last three days. Generally, the new high on a low volume is not an encouraging sign.   

Nifty has rallied nearly 95 per cent from the lows of March. With this, the index is currently trading up by 29 per cent from the long-term moving average i.e. 200-DMA, and nearly 8 per cent up from the 50-DMA. This indicates that the price is trading too far away from its mean. If we can take some cue from history, such instance leads to a formation of the top as all the major tops were formed between 20 per cent and 30 per cent from the 200-DMA earlier in the past.   

Having said this, we would advise you to trade with caution and maintain a strict stop loss at the prior day low. On the upside, the level of 14,700 is likely to act as a resistance and 14,500 may act as immediate support.