Nifty trend for Tuesday

Nifty started the week on a strong note as it scaled fresh lifetime highs of 13,597.5; however, the initial momentum soon started to taper off and the index trimmed its early gains. Once again, the 20-period average of 75-minutes came to rescue the bulls as the index took support at the 20-period average and bounced nearly 85 points from the day’s low to end at the 13,558 mark.

The price action of the day formed a small body candle, which resembles a hanging man pattern. The index has recorded a hat-trick of indecisive candles and out of the last five trading sessions, Nifty formed four indecisive or reversal candlesticks but none of these patterns have got any kind of confirmation as the bears have failed miserably to close below the prior day low to end the bulls' domination.

One interesting observation is that the 5-EMA and 21-EMA almost converged on October 30; however, from November 3, both these moving averages started to diverge, which indicated that a new trend is beginning and since then, the 5-EMA has acted like a sheet anchor for the bulls. There were a couple of instances, where Nifty had closed below the 5-EMA marginally but due to the lack of a follow-through selling, the price reclaimed the 5-EMA very next day. So, as long as the index trades above the 5-EMA, the bears would not be able to shame the bulls. Hence, in the near term, traders should keep a close eye on 5-EMA. Furthermore, the relevance of the 5-EMA increases as the low of Monday’s and 5-EMA are at almost similar levels. Hence, 13,470 would be a crucial level for the bulls as well as the bears. If bulls managed to hold above this level, it would continue to ascend but if the bear takes the bull down below this level, it would be like killing two birds with one stone as the index would close below the prior bar low and at the same time, it would breach its 5-EMA. So, in short, the level of 13,470 would act as a line of control.

However, on the upside, the level of 13,600-13,650 would act as a resistance level for the bulls. Overall, Nifty seems to move slowly and gradually in the northward directions but with the formation of multiple indecisive candles in the last couple of trading sessions, it clearly indicates that the momentum is dwindling and if the indecisive bars get a confirmation (by closing below the prior bar low), the bears would smell the blood.