Charts Indicate High Volatile Trading

For Now, watch the 23,530 support; a decline will trigger a further sharp fall. The volatility may increase further, and intraday swings may hurt the trading positions. The downtrend trend may continue for another three months

The equity indices suffered significant losses last week. NSE Nifty declined all five trading sessions in the week and registered a 4.77 per cent fall. BSE Sensex is also down by 4.98 per cent. The Nifty Midcap and Small-cap indices were down by 3.53 per cent and 3.57 per cent, respectively. Only the Nifty Pharma index was positive by 1.55 per cent, and all other sectoral indices declined. The Nifty Metal index is the top loser at 6.63 per cent. The other sector indices succumbed by 5-6 per cent. The Market breadth is extremely negative. The FIIs turned sellers again. They sold Rs4,121.22 crore, and the DIIs bought Rs16,546.41 crore worth of equities.

The Nifty is back to below 200EMA and 200DMAs. It erased almost the previous four week’s gains. The fall is sharper than the October first week’s fall. It posted the biggest fall in two years. As we suspected, the counter-trend rally ended at a 50 per cent retracement level. It failed to form a higher high. Friday’s massive volume decline is a caution for the bulls. The index may bounce for a day or two, but may not sustain. Importantly, the Nifty is back to the 50-week support. Earlier, it bounced from this long-term support, which is currently at 23,530. Before failing to sustain above the 100DMA, the index formed two big high volatile candles of 2.5 per cent intraday move. These two candles and the five days of consolidation between these candles look like a double-top pattern.

The inverted Head-and-Shoulders pattern also failed to meet its targets. The index spent a week above the breakout level, but failed to gain momentum. The 50DMA also stayed in the downtrend, even though the index was above this for eight days. This is why the curvature of the moving average is important in defining the trend. Now, the 100-DMA is also entered in the downtrend. The 50DMA is below the 100DMA, which is a short-term weaker sign. As last week’s fall is like a falling knife, it is not wise to catch or do bottom fishing.

The Nifty has formed a lower swing high and expect a lower low below 23,263 soon. A close below 23,530 will be a big negative, and the selling pressure may increase. The 61.8 per cent retracement level of the September 4-27 high is at 23,190, which is the strongest support. A close below this level will test the 22,800. In such case, the market will complete the Category-1 correction of 13 per cent. After hitting a new high in the previous week, the Smallcap-100 index declined by 5.29 per cent. The Nifty Microcap-250 index also made a new previous week and declined by 4.88 per cent from the high. This shows that the broader market also weakened last week.

The weekly RSI is at 44.41 in neutral zone. The RSI (34.08) entered the bearish zone. The weekly RSI may take a support at 40 and bounce. By the time, the index may hit a lower low of 23190. The daily MACD line declined below the zero line, the histogram shows a strong bearish momentum. Overall, the structure of the indicators is encouraging.

The strengthening Dollar is the main reason for the fall. The Dollar index broke out of a two-year consolidation and closed above the October 2022 high. It has an inverse relationship with the equity market. At the same time, the new Trump 2.0 protective policies may trigger global trade wars,

For Now, watch the 23,530 support; a decline will trigger a further sharp fall. The volatility may increase further, and intraday swings may hurt the trading positions. The downtrend trend may continue for another three months. The budget may act as a trigger for the market to bounce. Stay on the sidelines and wait for the right opportunities.

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