Monthly RSI hovering in extreme zone

The indices began the week with a negative tone and traded with high volatility on a Budget day. NSE Nifty traded in 786.95 points or 3.17 per cent range and finally closed with 303.95 points or 1.24 per cent gain. BSE Sensex is up by 0.90 per cent. Nifty Midcap-100 is up by 3.33 per cent and the Smallcap-100 advanced by 2.48 per cent. On the sectoral front, Nifty Pharma is up by 5.77 per cent, and Media gained by 5.74 per cent. The Nifty Auto is also up by 5.16 per cent. Bank Nifty is down by 1.86 per cent, and FinNifty has declined by 1.19 per cent. The Market breadth is mostly negative. The FIIs bought Rs16,943.37 crore, and the DIIs bought Rs8,888.87 crore worth of equities this month. The India VIX is down by 17.39 per cent to 12.24.

Nifty registered a new high closing with a massive recovery of 786 points from the budget day low. Last week’s bearish candle, Shooting Star, failed to get confirmation for its implications. Importantly, the volumes were higher in the last seven weeks. The index registered eight consecutive positive weeks. It also negated the bearish engulfing and two Doji candles’ negative implications on a daily chart. Interestingly, all the bearish patterns are failing to get confirmations. The Nifty gained by 3573.35 points or 16.79 per cent from the Election Results day (June 4). This massive rally is impulsive in nature and has a short duration of consolidations. Out of all the consolidations, the previous trading sessions were the longest ones. Normally, the swings and the bases are limited to 8-10 days.

After May first week, the index did not close below the prior week’s low, which is 11 weeks long. This shows an extended rally. During this rally, the 10-week average acted as a support. The index underwent high volatile on event risk days on the Exit poll, Election Results, and the Budgets. Every decline attracted fresh buying interest. Last week’s heavy volume confirms the buying interest or an accumulation.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)