Nifty Forms an NR7 Bar: Will Volatility Rise After Compression?

The NSE benchmark Nifty50 index began the day with a positive bias. In the first 30 minutes of trading, the index breached the low of its prior session, making an intraday low of 22,306.65, which it held for the remainder of the trading session. Following this initial low, the Nifty50 gradually picked up momentum throughout the day, reaching an intraday high of 23,389.45.

Afternoon Reversal and Market Close

However, in the last leg of trading, the Nifty50 erased all its gains after registering the intraday high in the afternoon session. The index ended the day little changed from the previous day’s close, finishing up 0.02% or 5.65 points at 23,264.9. Cash market volumes on the NSE were slightly lower, amounting to Rs. 1.25 lakh crore.

Candlestick Patterns and Market Consolidation

On the daily chart, the Nifty50 index formed a small body candle with shadows on both sides, resembling a spinning top pattern. The formation of a spinning top after a rally often indicates a period of market consolidation. Observing closely, the index traded within a range of 183 points, the narrowest range in the last seven trading sessions, leading to the formation of an NR7 bar. An NR7 bar is a bar with the narrowest range (difference between the high and low prices) of the last seven bars, signaling a pure consolidation phase.

Technical Indicators: MACD and RSI

To gain more comprehensive insights into market conditions, we will use the MACD and RSI indicators. The daily 14-period RSI has flattened, which is typical for a leading indicator during consolidation. Meanwhile, the lagging indicator MACD has shown an increase in momentum but is approaching a crucial point last seen in March, which was followed by a 3.6% correction. This suggests we are in a cooling-off phase, and on Wednesday, we might witness a range-bound session with important support in the 23,030-23,050 range.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.