Nifty 50: First Red Candle in 7 Sessions!


The ongoing brutal rally in the broader market index is clearly evident. The index has scaled almost 2,000 points from the 26 October 2023 low of 18,837. This is the sharpest rally in the large-cap index of this year and there’s no stopping it.

There’s no doubt that bears have burnt their fingers trying to fade this rally and still no signs of weakness are visible. So, what should be done from here? Despite a very strong uptrend, I don’t think it will be a viable idea to go long at these levels because the downside risk is too large to be managed.

The nearest support I could find is 20,250 which is 700-odd points far from the CMP. I don’t know how many can go long on Nifty 50 with a stop loss of 700 points. However, those who are sitting tight on their long positions can still hold their positions but with a tightened stop loss to lock in the majority of the profit.

For the first time in the last 7 sessions, bulls seem to be tired with the red candle forming on the daily chart. Also, this closing near to the opening has formed a Doji-like candlestick which denotes indecision among market participants. This candle at market extremes is a good indication of a probable reversal.

To denote the market extreme here, the RSI (daily, 14) can be used which is showing a reading of 84.03, the highest since mid-September 2021. Yes, the momentum is that strong! Hence, traders can expect a mean reversion from this overbought zone.

So, is it mean to go short? Here’s an interesting price action to notice. In the last 7 sessions, the index has never fallen below its previous day’s low (PDL). So, I would count a short signal as soon as the PDL is taken out, be it tomorrow or next week. This would be a counter-trend trade, hence, the chances of going it wrong is high.

Disclosure: I have multiple options for positions in Nifty 50.

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X (formerly, Twitter) – aayushxkhanna

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