Avoid long positions
The 15,900 level has become an arduous resistance for the Nifty as it tested at least 6 times
image for illustrative purpose
Finally, the low volatility shown its power of inverse relationship. The rise in VIX and the impulse decline in the index is on expected lines. Today's fall of over one per cent with extreme negative market breadth and high volumes led to another distribution day. The distribution day count has increased to five, which shows a classical distribution pattern. The Nifty gained just 47 points during the last five trading sessions. It erased four days of gains in just one session today. Barring, Nifty IT all the other sectoral indices closed in the RED. The market breadth is extremely negative as 1165 declines and 766 advances. About 115 stocks were in the upper circuit, and 92 stocks hit the lower circuit. Interestingly, 35 stocks were hit by both bands. About 150 stocks hit a new 52-week high today.
The 15,900 level has become an arduous resistance for the Nifty. It tested at least six times. The classical technical analysis says the 7th resistance is rare and, if it happens, will be a wonder. So, next time, either it has to breakout on the upside or break down on the downside decisively with a volume. Today's move is destructive in many terms. First, it failed to cross the resistance even after several attempts.
The second, the price actions double-digit increase in VIX, is an indication for the storm, which we are cautioning for the last few weeks. It filled the gap of fifth July. Closing below the 20DMA on contracted Bollinger bands is another indication of an explosive move on the cards. The Nifty has broken the two-level of trend line supports. The first one is Ascending triangle's downside breakout, which will have bearish implications with an impulsive move. The second support line is drawn from April 22 also broke decisively on Thursday, but not closing. These supports breaking from the resistance line on a single day means a stronger bearish tone present in the market. Even Bank Nifty also registered a failed breakout today. After testing six consecutive weeks, the Bank Nifty finally gave up the strength to the bears.
As we mentioned in the previous weeks, the 15,635-15,670 zone of support is crucial now. Closing below this zone means the index formed a lower low. Prior to Thursday, there are four down days and four up days. In any case, the Nifty decline more than three days and, closing below the 15,600 level, will enter the short downtrend. It may retrace up to a 38.2 per cent level of 15,240 points. There is support at the prior swing low and 23.6 retracement level of 15,498 points. Unless it closes above the 15,900 points, avoid a long position in the index.
(The author is financial journalist, technical analyst, family fund Avoid long positionsmanager)
