Home Market Trade setup: Market may look upbeat, but charts showing signs of exhaustion

Trade setup: Market may look upbeat, but charts showing signs of exhaustion


The domestic equity market continued to edge higher and at the same time displayed signs of a possible and long overdue exhaustion of the upward move as it ended Fridays session with modest gains.

The session remained somewhat different, as the market opened on a higher note, pared gains but then rose to end higher. Such behaviour kept the market rangebound and threw up signs that pointed towards possible exhaustion of the current upward move. In the end, Nifty ended with net gains of 53.90 points, or 0.47 per cent.

Going forward, a quiet start is expected for the week ahead. However, one cannot ignore the distinct bearish divergence that RSI has shown on the daily chart. Fridays rise has also come with the shedding of some Open Interest in Nifty futures. This may not point directly towards anything immediate, but we cannot ignore such behaviour if it recurs as it may point towards likely distribution at higher levels.

On Monday, 10,650 and 10,710 levels are likely to act as immediate resistance points for Nifty. Supports should come in lower at 11,570 and 11,450.

The Relative Strength Index or RSI on the daily chart stood at 71.7689. The RSI not only remains in the overbought range, but also shows a bearish divergence against price. Such bearish divergence occurs when Nifty forms a fresh 14-period high, but the RSI does not. The daily MACD remains bullish, but it is narrowing its trajectory.

A Doji Star occurred on the candles. This candle also has a longer-than-usual lower shadow. As such formations have occurred when the market is overbought and is showing a bearish divergence against lead indicator, it may mean bearishness going forward.

This signals a potential trend reversal, though it requires a confirmation on the next bar.

Speaking on a broader term, the market is distinctly showing signs of exhaustion. Though such condition may peRead More – Source