Charts Caution Selling Pressure

The index on an hourly chart closed below the prior bar lows all day. Monday’s Gap area is crucial resistance for now. Interestingly, the index closed below the 23.6% retracement level of the prior upswing

With an all-round intense selling pressure, the equities gave up last week’s gains. NSE Nifty declined sharply by 368.10 points or 1.41 per cent and closed at 25,810.85 points. Only the Nifty Metal index is able to close with a 1.33 per cent gain. All other sector indices declined. The Auto was the top loser with 2.11 per cent. The FinNifty and Private Bank indices are down by 1.71 per cent. The Realty and Bank Nifty were down by over 1.6 per cent. Most of the sectoral indices declined by 0.5 per cent to 1.5 per cent. The market breadth is negative as 1,674 declines and 1,137 advances. About 160 stocks hit a new 52-week high, and 125 stocks traded in the upper circuit. Reliance, HDFC Bank, ICICI Bank, and Tata Steel were topping the trading counters in terms of value.

The Nifty erased all the last week’s gains in a single session. We have been cautioning about the impulsive fall for the past few days. Those who chased the rally will stuck in this kind of decline. The Nifty declined sharply and closed below the previous week’s low, as well as 8EMA support. This fall was hinted at on Friday’s high-volume negative close. We have been mentioning the mean reversion, which is a reality now. The index came closer to the 20 DMA. Now, the index is just 1.27 per cent above the 20DMA. Last Thursday, the distance was 3.19 per cent. Sooner or later, the index will test this crucial 20DMA support and complete the mean reversion. Monday’s fall is like a falling knife. The index on an hourly chart closed below the prior bar lows all day. This is an indication of intense selling pressure and a lack of buying support. The hourly RSI fell into the bearish zone, which may lead to a tepid bounce. These bounces are common and may give fresh opportunities to exit the long position. The daily RSI has also declined to 61.66 from 78.25 in just two sessions. Monday’s Gap area is crucial resistance for now. Interestingly, the index closed below the 23.6 per cent retracement level of the prior upswing. Now, only above the 25,150 points, the index may resume the rally. On the downside, the immediate support is at 20DMA of 25,453pts. The 7.06 per cent spike in VIX also indicates volatile days in the near term. Protect the profits on the table with risk management.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)