Exit the party before it ends: These three emerging signs show profit booking ahead on Dalal Street

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At the time when the benchmark NSE Nifty index is hovering at its record high levels, we are observing some red flags which can put some pressure on the market going ahead. At the time of writing, the 50-share index was already down 77 points or 0.49% at 15,791 at around 1.45 pm (IST).

Key observations

First: The derivative data indicates that retail participation is highest in stock futures in comparison to the past few years. They have net over 8.5 lakh contracts longs in the stock futures and that seems to be a bit heavy.

Of course, one would argue that the fresh account openings have been phenomenal since the beginning of 2020. However, the new restrictions imposed by the market regulator Securities and Exchange Board of India (Sebi) to curb the leverage positions do not go hand in hand with such huge participation. The data is indicating some kind of over-optimism.

Second: If we see the larger degree chart of the Nifty Midcap 100 index, it shows a strong hurdle at around 28,000-29,000 zone. Although the zone is a bit far from the current price of 27,200. However, the index might get stuck in the mentioned zone in the coming weeks.

Lastly, the Nifty 500 is stuck at the larger degree trend line resistance at the 13,700 mark. This resistance coincides with the 200% retracement of its previous move. The above two points dictate that we are reaching an exhaustion point for broader markets.

Conclusion: Overall, we are of the opinion that any upside from here on should be used to lighten long positions. It’s still early to say that the top is made but it is always wise to exit the party before it ends. We advise traders to stay extremely selective while picking up long bets and remain vigilant in case of any ambiguity going further.

(The writer is AVP-Technical Research at Anand Rathi Shares and Stock Brokers. Views expressed are personal)