Avoid leveraged positions amid volatility

After a positive opening, equities closed in the negative zone. NSE Nifty declined by 34 points or 0.20 per cent and closed at 16951.70 points. The Bank Nifty and Fin Nifty closed with 0.35 per cent each. The PSU bank index is also by 0.34 per cent. All the other sector indices were down. The Nifty Media and Realty indices declined by 1.68 per cent and 1.21 per cent respectively. The other indices were down in the range of 0.10- 0.97 per cent. The market breadth is extremely negative for the second consecutive day, as 1,472 declines and 486 advances. About 485 stocks hit a new 52-week low, and 146 stocks traded in the lower circuit. HDFC Bank, ICICI Bank, and Adani Enterprises were the top trading counters on Tuesday in terms of value.

Nifty has formed another bearish candle - Bearish Engulfing. After a positive opening, the index did not sustain at higher levels. Bearish Engulfing after a Doji candle indicates more pain is due. For the last three days, the 16913-16918 has been acting as a support. In any case, the Nifty closes below this parallel support on a closing basis with an increased volume will lead to further fall. Importantly, for the last 14 days, the Nifty is trading in a tight range of 17207 to 16913. Even though last week it declined below the, the closing was also in the range of 16917-938 zone on the bottom. For now, this two-week lower band is very critical for the market. The next major support is at the prior swing low of 16747, which is 200 points away. The current consolidation is unique in many ways. The last two weeks of consolidation are around the 50 per cent retracement level of the prior uptrend. Unless it closes above 17200, we, the bulls, may not have the strength for an upside reversal. With the current price pattern analysis, the downside is limited to 16747-582. An interesting fact is that Nifty formed four consecutive monthly bearish candles after 1996, and 1998. As the fall is extended, expect some technical pullback next week. As the Nifty is also forming a bearish engulfing on a quarterly chart. To negate this most danger, the Nifty has to close above 17105, at least. For now, as the expiry is on, Volatility will increase further. Trade cautiously and avoid highly leveraged positions.

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