Avoid long positions as market on downside moves

The fresh week started with a negative closing and weakness in the broader market. NSE Nifty declined by 85.60 points or 0.48 per cent and closed at 17,770.90 points. The CPSE, PSE, and FMCG indices closed on a positive note. The Media and the IT indices were the top losers, with 2.45 per cent and 1.88 per cent, respectively. The Realty and the Metal indices also closed lower by 1.68 per cent and 1.19 per cent. All the other indices ended with 0.25 to 0.8 per cent declines. The VIX spiked by 7.34 per cent to 13.68, in line with our expectations. The market breadth is extremely negative as 1452 declines and 503 advances. About 92 stocks hit a new 52-week low, and 83 stocks traded in the lower circuit. Coforge, Adani Enterprises and Reliance were the top trading counters today in terms of value. The Adani group stocks resumed their downward trend.

The Nifty closed below Thursday’s low and below the moving average ribbon on the hourly chart. The 20DMA acted as strong resistance again. This breakdown erased the hopes of an upside move. After two consecutive indecisive Doji candles, the strong bearish engulfing candle indicates the reversal. It tested the four-day low, and the late afternoon recovery failed to sustain till the end of the day. The momentum picked up on the downside. On an hourly chart, the MACD line is decisively below the zero line, which is negative for the market.

Currently, the Nifty is below all short and medium-term averages. The broader market participation in the sell-off is a worry now. As we discussed yesterday, the low VIX is negative for the market. In any case, the Nifty fail to close above the Thursday high of 17916 will reduce the probability of breaking out of the Budget day range on the upside. The 100DMA resistance is at 17945. The confluence of resistance is placed at the 17916-972 zone, which may be a herculean task to break. In such case, the low of the range, 17353 and the 200DMA, 17317, will be tested in the next 3-4 days. This is the eighth day of trading in the budget day's range. Longer sideways price actions will lead to a higher impulsive move. The evidence is pointing towards the retesting of 17350 in the immediate term. The RSI declined below 45 and made a swing high at the prior resistance. It is advised to avoid long positions now. A break below today's low 17719, will confirm the downside move.

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