The start of the day was quite good with the benchmark Nifty 50 index not just trading in the green zone but also making a new all-time high of 22,783.35. However, the record high was made with a marginal difference of around 7 points, from the previous high of 22,775.7.
Although a new high is always a bullish signal, this less of a difference coupled with a sharp profit booking which dragged the index by around 210 points from the high is creating some hindrance for bulls.
As of 3:23 PM IST, the index is trading 70 points down to 22,571 and reversing from the all-time high is definitely not a good sign. Now what should traders do?
Firstly, the broader trend is bullish because of a new all-time high today but it lacks strong momentum. But long positions should not be initiated here and waiting for a dip to around the nearest support of 22,300 might be a good option. If this low is breached, then the very strong support zone of 21,700 - 21,800 could be there on the screen in the subsequent days. Both these support zones can be used as a buying opportunity.
Coming to the short side, if you look closely, the index is also forming a double-top pattern on the daily time frame as both the peaks of this M-shaped pattern are around the same levels. This is a bearish reversal pattern and has the same support as mentioned above (the strong one).
Ideally, traders should wait for the pattern to complete which is done after the support is broken but those looking for a pre-mature short entry can try to initiate some hedged bearish strategies. These positions can be covered at the same support levels where bulls can try for long positions.
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X (formerly, Twitter) - Aayush Khanna