The broader market index delivered a decent rally in yesterday’s session, going 183 points up and making a new lifetime high of 23,754.15. Any index or stock when trading at a new high always gives a bullish signal, however, traders might be better off waiting for a dip.
There are multiple reasons for this. The first is the appearance of a bearish divergence on the daily chart. The RSI (daily, 14) is clearly warning of a probable reversal as the momentum which should definitely not be ignored. A divergence is a very strong signal for a reversal in the ongoing trend, especially when it forms at an extreme end such as an all-time high/low. These zones are good for initiating mean reverting trades.
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Image Description: Daily chart of Nifty 50 with RSI at the bottom
Image Source: Investing.com
Secondly, with the NDA government finally securing the Lok Sabha 2024 election win, the market is now waiting for the Union budget for FY25 which is to be presented in the next month. Market participants would maintain caution prior to the budget which might trigger some profit booking in the index.
So what should traders do? As the trend is clearly bullish, short positions are not recommended. Rather, traders should wait for a dip to initiate long positions which is around 23,350. This is the new support that has been formed and it is where some buying pressure is expected to kick in if the index drops till here.
However, a break of this support might also extend the selling spree and there are no further support levels in the vicinity till 21,700 21,800. Below the support of 23,350, the broader structure will slightly weaken and then traders can think of short positions with a strict stop loss of the all-time high.
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Also Read: Gorilla Investing: A High-Conviction Strategy for Outsized Returns
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