Index trend and stocks in action on August 24, 2020
On Friday, the index opened the session with a gap-up but the bulls seemed to be in a lousy mood as, throughout the day, the index traded in a range of only 56 points. However, in the end, Nifty settled with gains of half a per cent at 11,371 mark.
During the last week, Nifty rose 1.73 per cent and the range for the entire week was of about 316 points. The last week’s range was below the 10-week average. On the weekly time scale, Nifty had formed a spinning top like candlestick pattern (it is not a perfect textbook pattern). This candlestick pattern is considered as a neutral pattern and indicates indecision regarding the future trend direction.
Nifty has closed just below the 78.6 per cent retracement level thus, its Monday opening and the price action thereof are very crucial to monitor. As sustaining above the 78.6 per cent retracement would definitely induce confidence amongst the bulls. The trend is clearly up as the structure of higher high and higher low continues. Further, Nifty has recorded the highest weekly closing after February 28, 2020.
Also, for the first time, after the week ended February 01, 2020, the RSI has moved above 60-mark. The general rule of RSI theory suggests that this is a bullish territory. Going ahead, the bulls would attempt to fill the gap of February 28 completely and reclaim 11,500 mark.
However, the indicators are not representing an encouraging picture. The divergences are everywhere. The RSI is moving in a downward channel and unable to make new swing highs. The trend strength indicator ADX is moving downwards. Even though the Nifty is trading above the 200-DMA, the long-term moving average is still in a downward trajectory. Nifty is trading above the 20-DMA since May 27 and the same has been acting as critical short-term support, which has now flattened. This forces us to think about booking profits at the current level.
Hence, traders are advised to stay neutral but for those who are already holding long positions, keep 21-EMA as a trailing stop-loss. Aggressive traders are recommended to create long positions on a decisive breach of 11,410.
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