Nifty trend for Tuesday

Nifty opened with a gap-up and filled the opening gap. After a dip in the first half, the index regained strength and on the way up, it crossed its previous all-time high level of 12,963 and registered a new all-time high of 12,968.85. However, it failed to sustain at higher levels and ended the day at 12,926, up by 0.52 per cent. Interestingly, on an up day, India VIX jumped 6 per cent, which indicates an increase in the volatility.

The price action of the day has formed a small-bodied bearish candle with a long lower shadow, which resembles a hanging man pattern. The formation of a hanging man pattern at the end of an uptrend (at the top) warns of a lower price to come. However, this candlestick pattern requires a confirmation to act as a reversal pattern. This is the second time the hanging man candlestick has been formed on the daily chart. The first one was formed on November 17 and the second was on November 23. The formation of a hanging man in quick succession certainly creates some suspicions. Further, in the past six trading sessions, candle formation indicates that the life of bulls at higher levels is not comfortable as the bulls are struggling to get past the upper boundary of the ascending channel.

Further, despite the fact that the index closed in green; the MACD histogram showed that the momentum is declining. Also, the RSI on the daily chart shows a negative divergence as Nifty made a new high but RSI did not. Nifty has been trading above its 200-DMA for the past 90 trading sessions and currently, the index is trading up by over 20 per cent from its long-term moving average, which is a record in itself as the last time it had occurred back in 2016.

Overall, the price action of the last six trading sessions shows that Nifty is stuck in a range of 12,730-12,970 and as long as the index trades in this range, traders may not find decisive trading opportunities on either side. A move above 12,970 could result in the breakout of the range on the upside, while a break below 12,730 would indicate the breakdown of the range. Hence, short traders can take advantage of this.

Since we are nearing the November series expiry, it’s important to keep an eye on rollover data, which gives us an idea whether traders are willing to carry forward their existing positions to the next series or not. D-3 i.e. Three days before expiry, Nifty Rollover stands at 23.7 per cent and Roll cost is at 20 points premium. In Bank Nifty, Rollover stands at 24.7 per cent with a flat roll cost.