Chartist Talks | Nifty Midcap index can be a case of double top formation, says Indiacharts' Rohit Srivastava

Rohit Srivastava is the Founder of Strike Money Analytics and Indiacharts

Volume in the Nifty50 in the last few days has dried up completely. So, unless there's a close above 19,850 on rising volumes from here, it is better to consider the possibility that we are forming a top and will rollover to the downside, Rohit Srivastava, Founder of Strike Money Analytics and Indiacharts says in an interview to Moneycontrol.

The Nifty midcap index has been closing higher for the day for 15 days in a row, and that is a record of sorts. The new highs in the Midcap index over the last few days were not confirmed by the Nifty small-cap index. So, there is a case for a double top in the Nifty Midcap index since small-caps have stopped making higher highs.

The Double Top is a bearish reversal pattern and forms after the asset (stock, index etc) hits two consecutive peak levels, with a correction in between that two peak levels (sort of 'M' kind of formation).

Right now, it is hard to conclude that markets will break out to a new high. Most of the technical evidence shows 19,840 to work as a strong resistance. New highs in the Midcap and Smallcap index are not confirmed by the Nifty, resulting in a negative inter-market divergence that has bearish implications.

Volume in the last few days has dried up completely. So unless we see a close above 19,850 on rising volume from here, we should consider the possibility that we are forming a top and will roll over to the downside.

Also read: Honasa block deal: Mamaearth employees may sell Rs 150-crore ESOPs this week

The IT index has not made a clear impulsive advance between March 2023 and October 2023. What this means is that it is not a clear upward trend that can go on for the long term. The pattern raises doubts about the sustainability of any move in tech stocks.

The FMCG index has to go past 52,900 for a move higher to continue. Failure could result in a fresh round of selling. The monthly chart shows whipsawing in the Rohit Momentum indicator (RMI), which is giving multiple buy/sell signals. We await further clarity.

The recent rally from 42,000 did not have the strength of momentum to confirm that we have a sustainable bottom at 42,000. The recent move could not get past the 20-week average at 44,420. So, any further upward move requires a move above 44,420.

The Nifty midcap index has been closing higher for the day for 15 consecutive days, and that is a record of sorts. The new highs in the Midcap index over the last few days were not confirmed by the Nifty small-cap index. So, there is a case for a double top in the Nifty Midcap index since small-caps have stopped making higher highs.

The Nifty PSE index witnessed a buying climax in September, meaning that the new high in the Nifty PSE index was accompanied by near all-time high volumes. This kind of buying happens at meaningful tops or just before it.

In October, the new highs in the PSE index did not carry the same volume pattern which means we have a negative divergence in the volume pattern. The buying power has abated, and the index needs to consolidated before it can move higher.

Time to step back from the over optimism in the near term. Usually after a volume climax the highs that are seen are not crossed easily for months.