Indices below 50DMA indicating bearish sign

The equity markets closed sharply lower with an intensified selling pressure. The benchmark index NSE Nifty closed at 17,213.60 points with a decline of 302.70 points or 1.73 per cent. Barring PSU bank, CPSE and Energy indices, all the sectoral indices closed negatively. The PSU Bank index moved up by 0.92 per cent. CPSE and the Energy indices advanced by 0.89 per cent and 0.51 per cent, respectively. The Bank Nifty and FinNifty led the fall, with 2.05 per cent and 2.57 per cent declines. Most of the sector indices are down by 1 -1.5 per cent today. The market breadth is extremely negative as 1372 declines and 704 advances. About 86 stocks hit a new 52-week high, and 137 traded in the upper circuit.

In just three days, the benchmark index erased 62 per cent of the pre-budget rally. Monday's fall has added another distribution day, and the total distribution days reached six. A decline below 50DMA, along with six distribution days, is a bearish sign. As we suspected, the upside move on low momentum last week, and the decline is sharper too. Now, the index is below the 20 and 50DMAs, and just hanging around 61.8 per cent retracement level. It also closed below the 30 week moving average. Importantly, the index closed below the previous week's low at the beginning week. The MACD histogram shows an increased bearish momentum. The RSI faced resistance at its 20-period average and declined very fast to 42 levels. On a 75-minute chart, the index below the moving average ribbon and the MACD line below the zero line is also a bearish sign. We were cautious as the Nifty closed between 20 and 50DMAs on Friday, and there is no directional bias. Now, the index got a confirmation to the direction on the downwards. A move below 17202 (mentioned previous column) will be a negative sign for the market. The immediate support is at 17041. In any case, it fails to hold this support, the index may go down below the prior swing low of 16836, with a higher probability. The negative directional indicator moved sharply higher, and an uptick in ADX indicates the bears are tightening their grip on the market. At the same time, on a lower time frame, the channel breakdown target is almost met. A small bounce is possible towards 17278-377, which may attract a fresh selling. It is better to stay away from fresh purchases.

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