Time to avoid long positions

In another highly volatile session, the domestic equities sharply declined and closed at day's low. The NSE Nifty, the benchmark index, declined by 143.05 points or 0.82 per cent and settled at 17368.25 points. It traded 284 points range on Monday. Barring the Nifty IT, all the sectoral indices were closed in the negative zone. The IT index is up by 0.31 per cent. The Media, Realty indices are down by 1.81 per cent and 1.35 per cent, respectively. The PSU bank index also tumbled by 1.34 per cent. The other sector indices declined by 0.25 per cent to one per cent. The market breadth is slightly negative as 1087 declines and 1035 advances. About 123 stocks hit a new 52 week high and 211 stocks traded in the upper circuit.

The Nifty opened with a breakout and gap-up opening, but did not sustain at higher after the first hour of trading. It declined sharply and engulfed the previous two candles. As we suspected, the up move after two indecisive candles last weekend, the rally did not sustain. The Nifty retraced 61.8 per cent of the prior swing and 44 per cent of the downtrend. After spending two days above the 20DMA, it declined much below this crucial moving average.

Importantly, the index closed below the prior day low is a bearish sign, and this is the end of a counter-trend. In any case, if it fails to sustain above 17313 points, it is a further negative for the market. Now, the 50DMA and the channel resistance are placed at the almost same level. Below the 17313 can test17110 with an impulsive move, adding a distribution day. These impulsive moves are common in the corrective phase. The stochastic oscillator has given a sell signal in an extremely overbought condition. With Monday's sharp decline, the bullish price structure is damaged, and it shows clear evidence of the end of the counter-trend. It is better to avoid long positions and be with a bearish bias.