Charts indicate probable consolidation

The index closed below the 20DMA for the second day and below the medium line of the rising channel. It means the mean reversion is almost completed. On the downside, a move below 22117 is negative and it may find the support at below 21000 levels. On the upside, it must sustain above the 50DMA of 22163 to consolidate

The equity market closed negative for the third consecutive day as the global markets weakened further. NSE Nifty declined by 124.60 points or 0.56 per cent and closed at 22,147.90 points. The Nifty Media index is the top gainer with 1.57 per cent. The Smallcap, Oil and Gas, and the PSE indices were gained by over 0.50 per cent. The Nifty IT index is the top loser with 2.58 per cent. The PSU Bank index down by 1.27 per cent. All other indices gained or lost by less than a per cent. The India VIX is up by 1.18 per cent. The market breadth is positive as 1,621 advances and 995 declines. About 90 stocks hit a new 52-week high and 134 stocks traded in the upper circuit. Exide Industries, Infosys, ONGC and JioFin were the top trading counters on Tuesday, in terms of value.

The Nifty registered a second consecutive gap-down opening. It decisively fell 0.56 per cent below the 20DMA. It closed just below the 50DMA. Though it closed above the opening, the recovery efforts failed to close above the 50DMA, which is crucial for the directional bias. Both frontline indices, the Nifty and the Bank Nifty, formed a small body, long shadows candles.

After an over three per cent decline from the top in just three days, this candle formation indicates a probable consolidation. In any case, a small bounce may fill Tuesday’s gap by testing the 20DMA of 22284. Tuesday, the index escaped the distribution day, as the volumes were lower than the previous day. The MACD has given a bearish signal. The RSI closed at 45, and a decline below 40 will indicate further weakness. Tuesday, it took the support at 61.8 per cent retracement level. The index closed below the 20DMA for the second day and below the medium line of the rising channel. It means the mean reversion is almost completed. Wednesday is a holiday, and any untoward incidents in geopolitical tensions may dampen the market sentiment. On the downside, a move below 22,117 points is negative and it may find the support at below 21,000 levels. On the upside, it must sustain above the 50DMA of 22,163 points to consolidate. Any counter-trend consolidation will try to test the 22,284 (20DMA). If the upside move continues, it may also fill the Monday gap. Keep an eye on geo-political developments, and earnings. It is time to be very cautious on both sides.

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