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Nifty: RSI enters overbought zone; prior day low holds key going forward

·2-min read

When India men's national cricket team captain Virat Kohli was at his peak performance, his routine was like, ‘wake up, score centuries, sleep, repeat’. Similarly, on D-Street, the bulls seem to have entered the same mode, where they open with a gap up, hit a new all-time high, and repeat!   

Nifty started the week with a gap-up at 15,725 and after initial volatility, it slowly and gradually moved higher to hit a record high of 15,773 and closed above the 15,750 mark for the first time in history.   

The price action of the day formed a small body bullish candle with a lower shadow, which indicates dips were being bought. Interestingly, this was the third day in a row, where we had seen a similar type of candlestick formation. This indicates inherent strength and lack of selling interest at the new highs. Furthermore, the overall market breadth continued to be buoyant.   

Though there are no apparent sell indications at the current juncture, a narrow trading range accompanied with RSI entering the overbought region can be a harbinger of weakness going forward, which will be confirmed if Nifty closes below the prior bar.  As Nifty did not close below the prior day low since May 20. Hence, going forward, for long traders, it’s important to keep the prior bar low as a trailing stop-loss. Any close below the prior bar low would be an indication that the market would enter into a phase of consolidation.  

Hence, the level of 15,622 is likely to act as an important support in the near term while on the upside, the level of 15,800, followed by 15,950-16,000 is likely to act as a resistance in the near term.