Nifty 50 Shows Sign of Weakness but Uptrend Remains Intact

While the broader market index is consistently making newer highs, traders should start to get cautious. After making a record high of 23,664, the index closed the session 41.9 points lower at 23,516.

There are a couple of reasons why the current uptrend might take a U-turn soon. Firstly, in the last 7 sessions, there is only one candle that closed in the green, and that too with a negligible difference of less than 1 point. A red candle simply means that bears took control by the closing and pounded hard enough for the session to close lower than it opened. In almost all 7 sessions, the bears were seemingly taking control in the second half of the session.

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The second sign of a probable reversal is coming from a bearish divergence that is being made on the daily time frame. The RSI (daily, 14) is indicating a slowdown in momentum with a divergence with respect to the Nifty 50 price. Divergence is a very strong reversal indicator and should not be ignored.

Now the bigger question is should traders initiate short positions? Well, the broader trend is still bullish without a doubt. Any index making a new high cannot be termed as bearish. However, it is time to get cautious with long positions by tightening the stop losses to protect most of the profits.

It is difficult to estimate the correct support level as there aren’t any nearby. The major support is present at around 21,700 which is too far to be considered at the current price. The sharp recovery from the low of the election result date faced no hurdle on the chart and therefore on the way down, it’s difficult to find any support.

However, 23,200 can be taken as a reference point to start tightening stop loss orders. A noticeable fall can be looked upon as a good buying opportunity due to the established broader uptrend.

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Also Read: The Power of High-Quality Dividend Stocks with a “Screener”

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