Caution alert on volatility for investors

The weakness in global markets and the massive selling pressure dented the market with a huge fall. The benchmark index, Nifty, opened with a 146 points gap down and closed at 17412.90. It finally settled with 176.70 points or a one per cent decline. Only FMCG, Energy and PSE indices ended with marginal gains. The Bank Nifty and FinNifty dragged the market with over 1.8 per cent declines. The Realty and Media indices are also down by over one per cent. All other indices were down by 0.1 per cent to 0.83 per cent. The market breadth is negative as 1310 declines and 621 advances. About 70 stocks hit a new 52-week high, and 64 stocks traded in the upper circuit. HDFC Bank, Adani Enterprises and ICICI Bank were the top trading counters today in terms of value.

The Nifty closed below 200DMA for the third time in the last eight sessions. Today's huge negative close confirmed the previous day's bearish Engulfing implications. On a weekly chart, the index has also formed a bearish Engulfing candle. It faced resistance at the 10-week average and declined below the 40-week average but closed above the 50-week average, which acted as support for the second successive week. Importantly, Firday's fall with above-average volumes is an indication of a distribution. Though the index recovered over 88 points, it still closed below the opening level. The previous day's big bearish candle has damaged the price structure significantly.

The only visible positive fact is that the index has formed a higher high and low candle on a weekly chart. The index is struct between 10 and 50 weekly averages. Last week's low is the crucial support for next week. The sloping trendline, which is earlier resistance and now is the support, also placed the previous week's low of 17250. The weekly MACD is declined to near zero line. The weekly RSI made a new low after July 2022. For now, the gap area, or the previous day's low 17573, will act as resistance. We may see some bounce towards the 17451-573 zone. Interestingly, this zone is also similar to the 200SMA (17434) and 200EMA (17607) zone. Another close below 200SMA will be further negative, and the index can test the channel support of 16,918 points. As the Nifty has broken down all the crucial supports, it is better to avoid the aggressive long position. Be selective on trades; otherwise, increased volatility will hurt.

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