Avoid Long Positions Amid Rising Volatility

The selling pressure was resumed after two days of consolidation. All the sectors were negative, barring IT and FMCG. NSE Nifty declined by 113.15 points or 0.49 per cent. The FMCG and IT indices gained by 0.52 per cent and 0.40 per cent, respectively. The Media is the top loser with 2.60 per cent. The Smallcap, Realty, Microcap, Oil and Gas, Pharma, and Healthcare indices declined by over two per cent. All other sector indices are down by 0.5 per cent to two per cent. The India VIX is up by 0.30 per cent to 16.75. The market breadth is extremely negative as 2,183 declines and 635 advances. About 168 stocks hit a new 52-week low, and 155 stocks traded in the lower circuit. Cyient, HDFC Bank, Reliance, Mphasis, and Axis Bank were the top trading counters in terms of value.

The Nifty formed bearish candles on weekly and daily charts. It formed a bearish engulfing candle on the weekly chart and a shooting star candle on the daily chart. Last week’s doji candle failed to get the reversal confirmation. Expect more downside as the index closed near the previous week’s low. The index fell by 12.56 per cent from the top now. The index traded in Tuesday’s range for the last three days. This week’s decline with high volume indicates that the distribution continued with more intensity.

In any case, if it closed below Tuesday’s low of 22976; the next level of support is at 22800. Before the budget, we cannot expect more than this for now. On the upside, any reversal must close above session’s high of 23347-426 zone. Above this, the 200 EMA of 23647 is the target. For next week, this range is crucial. Either side breakout will givea directional bias. The weekly RSI is on the 40 support, and the daily RSI is back in the bearish zone. MACD shows increased bearish momentum in all timeframes. So, avoid the long positions for now. Expect more volatility next week.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)