Avoid long positions in Nifty

With the escalating geo-political tensions, the domestic equity market declined sharply with broad-based selling pressure. NSE Nifty declined by 246.90 points or 1.10 per cent and closed at 22,270.50 points. Only the CPSE index is able to register a 0.30 per cent gain. All other sectoral indices were down on Monday. The Media index is the top loser with 2.23 per cent. The FinNifty declined by 1.75 per cent, and the Bank Nifty was down by 1.63 per cent. All the sectoral indices are down by 0.58 per cent to 1.58 per cent. The India VIX is up by 8.11 per cent to 12.46. The market breadth is extremely negative as 2,072 declines and 464 advances. About 77 stocks hit a new 52-week high, and 235 stocks traded in the lower circuit. ONGC, Reliance, Exide Industries and HDFC Bank were the top trading counters on Monday, in terms of value.

The Nifty opened with a 180-point gap-down and closed at the day’s low. The initial recovery efforts were not sustained, though it moved above the first hour’s high. The Nifty has registered a distribution day, as it declined by 1.14 per cent and had a higher volume above average. Currently, it is holding four distribution days. Importantly. The Nifty closed below the 10-week average and 20DMA, as we expected yesterday. The last two day’s day of decline is clearly indicates a serious distribution is taking place. The MACD is about to give a bearish signal. The RSI is again back to below 50 level. Most importantly, the index decisively closed below the 38.2 per cent retracement level, very near to the 50 per cent retracement level (22,242). It also closed below the two-week low. To negate the bearish implications of the previous week’s Shooting Star candle, the index must close above 22,500-580, the zone of resistance. In just two days, the index declined by 516 points or 2.27 per cent, from the all-time high. Now, the strongest support is 50 DMA of 22,153 and the 61.8 per cent retracement level of the prior swing of 22,117 points. A decisive close below this support, the Nifty’s uptrend will be under pressure. An increase in the distribution days to 6 and closes below the prior low of 21,710 will confirm the downtrend. For now, avoid the long positions in the Nifty, and stay cautious. The geopolitical tensions and the earnings will play a major role in the markets.

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