Avoid long positions for now
Nifty has broken 18,080 support; The reasonable support is at 17967pts; If Nifty fails to hold this support, then highest probability is that it can go below the recent low of 17,774 pts
image for illustrative purpose
The equities have given up the recent gains and declined below the four-day low. NSE Nifty declined by 189.60 points or 1.04 per cent. All the sectoral indices are down in Wednesday's sell-off. The Metal and Realty indices were sharply down by 2.11 per cent and 2.05 per cent. The Bank Nifty, Energy, Media, Infra, PSE and IT indices were down by over one per cent. The other sector indices declined by 0.15 per cent 098 per cent. The market breadth was extremely negative as 1458 declined and 480 advanced. About 38 stocks hit a new 52-week high, and 70 stocks traded in the upper circuit. ICICI Bank, Reliance, and Infosys were the top trading counters today in terms of value.
After oscillating around 50DMA, the Nifty closed below Friday's low. In other words, the inside breakout has happened on the downside. Importantly, the 20DMA closed below the 50DMA (crossunder), which is another bearish signal. With this, as we suspected, the counter-trend consolidation ended. We can assume that 18265 is minor in the ongoing downswing that started on December 1. Today, the index has retraced by 50 per cent of the prior minor upswing. The 8EMA again entered into a downtrend. Today it formed a strong bearish after trading in the 223 points range. The breadth is extremely negative in the benchmark index and the broader market. The VIX rose by 5.65 per cent. Importantly, the Nifty registered a distribution day.
On an hourly chart, the index closed below the moving average ribbon and the ribbon in a downtrend. The hourly MACD declined below the zero line. The hourly RSI faced resistance at the 60 zone. The hourly price pattern looks like a double-top breakdown. As the Nifty has broken the 18,080 support, for now, the reasonable support is at 17967. If the Nifty fails to hold this support, the highest probability is that it can go below the recent low of 17,774 points. On the upside, it must move above the 20DMA (18276) and 50DMA (18293) zone of resistance. It must at least close above the prior bar high (18243). Otherwise, avoid long positions for now. As the first weekly expiry of the year is on the cards, the volatility may increase further. Apply risk management principles.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
