Nifty forms Gravestone Doji candle

The equity benchmark indices traded with high volatility in a truncated week. NSE Nifty gained just 55.9 points or 0.25 per cent. The BSE Sensex is also up by 0.20 per cent. The broader market indices, Nifty Midcap-100 and Smallcap-100, advanced by 0.61 per cent and 0.26 per cent, respectively. The Nifty Auto index is the top gainer by 1.94 per cent, and the Media index declined by 3.13 per cent. The Nifty IT continued to decline by 2.25 per cent. The advance-decline ratio is neutral. The India VIX is up by 33.80 per cent to 14.62. The FIIs sold Rs35,692.19 crore worth of equities last month. The DIIs bought Rs44,186.28 crore.

The General Elections are around the corner, and the market behaviour has changed. With increased volatility and the daily ranges, the market is not giving any clear signal, with erratic behaviour. The declining days attract more volumes, and the advancing days are thin volumes. This behaviour, high volatile and erratic move, is normally seen in Stage 3, which is the distribution phase. The reason for this is event risks like elections, geopolitical tensions, and several central banks’ policies in the next month.

The Nifty has formed a perfect Gravestone Doji candle, closing exactly where it opened. During the truncated week of four trading sessions, the index achieved new lifetime highs twice. However, there is a notable difference between the earlier highs and the latest four all-time highs. The Lifetime highs from 15thJanuary exhibit the characteristic of higher highs. In contrast, the latest four all-time highs of the 9thand 10thof April and the 30thand 3rdof May appear to be parallel highs. The index has formed highs, but the RSI has formed lower highs, indicating a bearish divergence. This bearish divergence is a continuation of the 15th December high. Despite the RSI’s attempt to negate the bearish divergence during the second week of April, it was unsuccessful, warranting caution and attention to potential market trends.

Historically, the price discounts all information before the outcomes. Unstable governments are not suitable for the market. During Elections, volatility will increase. On many occasions, the pattern breakout will occur. The markets at new highs were only in 2004 and 2019 before these elections.

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