Avoid aggressive short positions

The equities continued to decline and ended the week with one of the biggest declines. The Nifty declined by 41.40 points and closed at 17469.85. Only pharma, energy, infra and CPSE indices closed with gains. CPSE gained by 1.07 per cent, and PSE up by 0.72 per cent. The Energy index also gained by 0.79 per cent. The Metal index is the top loser with 3.02 per cent. PSU Bank, Auto indices are down by over 0.90 per cent. All other indices are down by less than half a per cent. The VIX was further down by 6.77 per cent to 14.05. The market breadth is negative as 1181 stocks declined and 757 advanced. About 169 stocks hit a new 52-week low, and 62 stocks traded in the upper circuit. HDFC Bank, Adani Enterprises, and Reliance were the top trading counters today in terms of value.

Nifty declined for the sixth straight session. It closed at the lowest level since October 3, 2022. During the week, it was down by 474.35 points or 2.64 per cent. Importantly, this is the longest streak of negative closings. For the consecutive day, the index sustained below the 200 EMA, and for the second day, it acted as a resistance. It is just 112 points away from the budget day low and 0.61 per cent above the 200 DMA. It formed another lower high and lower low candle. Now except for 200 DMA, all the moving averages are in the downtrend. The worry is the kind of selling pressure it is witnessing is indicating bigger trends are turning negative. Though it opened with a 80 point gap up, the Nifty declined by 177 points from the day's high. It closed below the 38.2 per cent retracement level of the prior uptrend. It just holds the 10-weekly average. The daily RSI is in the strong bearish zone. MACD histogram shows a strong bearish momentum. Volumes on Friday were lower than Thursday. The derivative data shows that the short positions were built up in the system.

Importantly, Nifty has declined not more than three straight months. We can expect some rebound in March if history repeats. In the next two days, Nifty may test the 200 DMA and bounce towards the 20DMA, in the most promising scenario. Let us be alert on both sides. It may end the downfall at any moment. Better not to venture with aggressive short positions.

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