Counter-Trend Rally Is Almost Over

After a week of outperformance, the broader market indices declined sharply, as the profit booking was witnessed across the board. NSE Nifty is down by 92.20 points or 0.41 per cent and closed at 22,460.30 points. Only the FMCG index is gained by 0.22 per cent. The Microcap-250 index is the top loser with 2.50 per cent, and Small-cap is down by 1.97 per cent. The Realty, Oil and Gas, PSU Bank, Consumer Durable, Energy, and Midcap indices declined by over 1.5 per cent. All other indices down by 0.25 per cent to 1.50 per cent. The India VIX is up by 3.82 per cent to 13.98. The market breadth is negative as 2,308 declines and 607 advances. About 90 stocks hit a new 52-week low, and 162 stocks traded in the lower circuit. BSE, Reliance, IndusInd Bank, Zomato, and HDFC Bank were the top trading counters, in terms of value.

The fresh week began with high volatility, as the indices faced resistance at 20DMA. The Nifty fell below the prior day’s low and erased the gains. It formed a Shooting Star candle, which is a bearish signal. The market breadth was negative as the broader market indices faced fresh selling pressure. As expected, the Nifty faced resistance at the 38.2 per cent retracement level and declined sharply in the afternoon session. With this, there are indications that the counter-trend rally is almost over. Only in case the index closes above the 22,669 points, it will resume the upward move. Otherwise, it is negative as of now as the index closed below the prior day low. The Nifty also closed on the 8EMA support. The RSI back into the bearish zone. The Hourly MACD has given a fresh sell signal. As the index has formed a strong bearish signal, and closed below the prior day low, a strong rise with higher volume is required to resume the upside move. On the downside, a close below 22,455 points, will be negative and it can test near the recent low. The derivatives data shows that the long unwinding happened in Nifty and Bank Nifty. Avoid long positions as long as it trades below the 20DMA.

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