End of the Nifty Bull Run?

Jul 30, 2021

Brijesh Bhatia, Research analyst

I'm sure you have noticed the Nifty has been stuck in a rage for a while now.

This is not a market that favours trend traders.

While the benchmark indices have been choppy, traders have focused their attention elsewhere, specifically on mid and smallcaps.

But what if I tell you that you should focus on the Nifty?

This is because I see signs of caution on the charts.

In this video, I'll show you why it's looking like the Nifty is making a short-term top.

Watch the video and let me know what you think. I would love to hear from you.

Hello viewers. Welcome to the Fast Profits Daily. Myself Brijesh Bhatia.

For consecutive months now, Nifty has been training in a range largely between 15,900-15,950 in the higher scale and 15,450-15,500 on the lower scale. Surprisingly, this is the narrowest range for the last two months we have seen in terms of percentages as well. Only a 3% range on the Nifty is the narrowest we have seen in times now.

New Research: 2 stocks to buy as Nifty50 heads towards 40,000

What should traders do? Are we forming a top or is it just a pause before the rally?

Well, I think we are in a sign of distribution it seems. So the first chart I want to show here is the distribution chart or the Wycoff theory on Nifty chart.

 

So if you look at the chart over here, we started in May with the rally or probably end of April we started with a rally. Till mid of June, I would say start of June, the first week of June, there was a rally which indicated the buying climax.

Generally, when the buying climax happens, the fear of missing out is very, very high. We have done this video in our video on trading set ups on discussing the distribution here on Wycoff. In case you missed those, do watch it.

Then it went into the consolidation. We saw upthrusts twice and when we hit the new all-time high of 14,960, it formed the fake out. Basically, what is a fake out? A fake out generally forms when the prices break the higher high or the range and comes back into the range with stronger volumes. That's what happened in the Nifty. We made a high and came back very, very strongly on the down side.

Now, if you look at the AR, the automatic reaction level, which was around 15,450, it held a very, very strongly because the previous support of 15,431 high is still holding. We saw a couple of down ticks over 15,630-15,650. Back into the last week, we hit around 15,500 levels and there was a strong conviction that we are in to the distribution.

We had a gap area we re-tested that gap area forming the last point of supply and we're back on the down side. Yes, we still are trading at around 15,800 levels, just shy of all-time high, a percent away from all-time high but I think this is slightly sceptical that the markets are not giving a strong sign of bullish momentum because in the last two months look at the momentum. The largecaps have done nothing.

But what could go wrong? Let's look at here the other angles are showing. So if you look at the second chart we see the RSI, which is the relative strength index.

 

We see three highs over there. I've just marked one, two, and three. At the same time, when highs were made, the RSI was making lower highs which is generally the negative divergence over here. That gives me a second instance where these things are not going good for Nifty.

Third, look at the Heikin Ashi chart over here and this is again the weekly chart. Don't look at the daily. I am looking at the weekly on the slightly broader picture.

 

Look at the rally and most of the dojis forming. Most of the dojis are formed during the exhaustion sign, and this is definitely an exhaustion on the Nifty. Even if you over the weekly in the lower panel, the RSI, it's giving the negative divergence, again a sign of risk over here.

The fourth and most important chart. Look at the Bollinger band. The Bollinger band is squeezing like anything, and this is the lowest level we have seen since 2019.

 

The squeeze in the sense of the middle line, the deviation of 1-1.5% lower down side was last seen in May-June 2019 and since 2-2.5 years, we are witnessing the same range happening. Look at the upper band when markets were trending higher. The upper band made a high of 16,057 and that is the level I would be looking at in case the bullish momentum emerges.

Till 16,057 is not breached, I would say it is a sign of cautious and markets are not looking healthy at current point of time.

Though I'm not looking that the primary trend has changed but definitely, the short-term trend is in danger at current point of time and I won't be surprised if we see lower levels of around 15,300 or 15,000 level or probably 14,960. That is the level which I'm eyeing.

Again this structure would only be negated once we cross 16,057 which is the Bollinger band high. If you look at the previous over here, the 15,778 high, markets are not convincing going higher above that.

We saw a couple of times, 15,850-15,900 but they are they are hovering around the similar levels and these highs generally plays a key resistance level even if you look at it historically not only on Nifty, on any asset, the Bollinger band highs are very, very stronger when you see a huge broadening happening.

 

So I think, we are certainly forming a short-term top over here. Till 16,057 is not taken out, I would avoid longs at this point of time and look for short opportunities.

Definitely again, I would say the primary trend has not yet changed. So this is just a short-term aspect for the next 2 to 3 months. I think markets might see a dip towards 15,300 to 15,000 levels on to the down side.

So signs of caution at this time on Nifty. In case we breach 16,057, there could be a range expansion and if, in case, the volumes increase, the volume expansion can be also expected, only once this 16,057 is taken out. So remember this level of 16,057 and look at your current positions.

Again, I'm looking from an investing point of view. This is purely from a trading point of view where some down tick can happen. Even the derivative structure for the last couple of months, we've been witnessing 16,000 is acting at a huge resistance. So in case these levels are crossed we might see the call writers coming to cover their positions, which might take again Nifty to higher levels, but certainly look for this level of 16,057.

So thanking you, in case you're liking our videos, do comment, do share it with your friends and in case you have joined my Telegram group yet, do join my Telegram group where I share the daily charts which will certainly help you out. So signing off. Brijesh Bhatia. Thank you.

Warm regards,

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

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