Nifty trend for Wednesday

Nifty inches up to set yet another record high as it went past the 13,400 for the first time ever to touch an all-time high level of 13,435 on Tuesday. However, as the volatility crept in, Nifty, at one point of time during the day, slipped more than 120 points from the day’s high. Recovery in the second half of the trading session helped the indices to close in green with gains of 0.28 per cent but just below the 13,400 mark.

The price action formed a Doji pattern as the price closed near the opening level, which indicates that there was a tough battle between the bulls & the bears right at the upper Bollinger Band. However, it maintains its rhythm of higher high & higher low for seven straight days.

If you recall, we had mentioned in our previous note that the index is likely to face resistance in the zone of 13,400-13,420. In line with our expectations, Nifty resisted near about our mentioned levels and formed an indecisive candle, which suggests that the index may take a pause before the next leg of the upmove.

Further, on a positive day, India VIX rose more than 3 per cent. Moreover, the advance-decline ratio was skewed in favour of the decliners, and in Nifty 50, around 19 stocks advanced as against 30 decliners. Also, the put-call ratio (PCR) is at the highest level of 1.83. Considering the above points, it certainly creates hesitation in the mind of the traders for long trades. On the 60-minutes chart, the RSI has moved below the ascending channel as well.

However, if we look at the price structure, there are early signs of exhaustion visible but no weakness at all in Nifty as it has not even once closed below the prior bar low since November 26. On the upside, the resistance is placed around 13,435, followed by 13,535 levels. On the downside, support is seen around the 13,300 mark. As long as it trades above the 13,300 mark, buy-on-dips would be a prudent strategy.

Overall, the formation of the Doji candle right at the top and with price-to-book value at 3.79, after the global financial crisis, Nifty has reacted lower whenever it attempted to reach the levels close to 4. Further, the index is currently 24 per cent above the long-term moving average i.e. 200-DMA, which is a rare phenomenon. Hence, either a retracement or a sideways action could be on cards.