All indicators show rising bearish momentum
The only positive fact is that Nifty escaped the distribution day, as volumes were lower than the previous day; If Nifty closes negative on Tuesday, it’ll confirm the bearish engulfing’s implications
image for illustrative purpose
The equities tumbled as the intense selling pressure in the broader market, particularly in PSUs. The Nifty declined by 166.45 points or 0.76 per cent and closed at 21,616.05 points. Only IT and Pharma indices closed positive by 0.79 per cent and 0.28 per cent, respectively. Both PSE and CPSE indices fell sharply by 4.52 per cent and 3.81 per cent, respectively. The Media index is down by 4.43 per cent. The Smallcap index is also down by 4.01 per cent. All other sectoral indices declined by 0.80 per cent to 2.97 per cent. The market breadth is extremely negative as 2,089 declines and 524 advances. About 149 stocks hit a new 52-week high, and 263 stocks traded in the lower circuit.
NHPC, Zomato, HDFC Bank, and IRFC were the top trading counters on Monday, in terms of value.
With an all-round renewed selling pressure, the Nifty closed below the 20DMA after January 31. Most importantly, it closed below the 10-week average and below the previous week’s low. It closed at the crucial rising trendline support drawn from the 26th October low. With Monday’s decline, the index has formed a bearish engulfing candle. As suspected yesterday, the short-covering in private sector banks were the key driving force on Friday.
In any case, the Nifty closes negative on Tuesday, will confirm the bearish engulfing’s implications, and expect the index to test key support of 21,137 in the next one week. For the last nine weeks, the index is trading in the 21,137-22,127 range. Now, it’s just below the 50 per cent retracement.
The RSI went back to 50 levels after testing the 60 zone, which is negative. Even though it is in the neutral zone, the negative divergence got the confirmation for its implications. The daily MACD clearly shows an increased bearish momentum. The Elder’s impulse system has formed a bearish candle. The only positive fact is that the Nifty escaped the distribution day, as the volumes were lower than the previous day. The Open Interest was up by 2.61 per cent on a 0.76 per cent decline day, which is an indication of short built-up. It is better to avoid building fresh, long positions and keep booking profit in PSU stocks.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
