Don't chase long positions
Market in counter-trend; Nifty enters high swing bearish engulfing pattern; Indicators give fresh sell signals on 75-minutes chart; Nifty shows inherent weakness at 61.8% retracement
image for illustrative purpose
The Indian equity markets collapsed from the opening highs. NSE Nifty down by 169.45 points or 0.98 per cent and closed at 17117.60. Only the Nifty Metal index closed with a gain of 1.5 per cent. Pharma, Media, Smallcap-100 indices advanced by less than 0.50 per cent. Bank Nifty, Fin Nifty, Infra, Energy, Auto and the FMCG indices are down by 1 to 1.5 per cent. Overall market breadth turned negative again as 1217 declines and 877 advances. The India VIX is up by 8.9 per cent. About 65 stocks hit a new 52-week high, and 120 stocks traded in the lower circuit. Infosys, Reliance and Tata Steel were the top trading counter.
As we expected yesterday, the market began its counter-trend. The benchmark index Nifty has formed a bearish engulfing and entered into the Thursday gap area. We also forecast of positive opening, and it may enter into a counter-trend consolidation. The Bearish Engulfing at swing high is not a good sign. The reversal of the current impulsive move met the target and now acting as a resistance. The 61.8 per cent retracement level (17327) acted as resistance for the last two days. It also closed below the previous day's low, which is the first sign of weakness. Only a close above 17327 is positive and can resume the uptrend. The Nifty closed below the 50 DMA (17245) and held trend line support for the day. The 17175-16987 zone will be a crucial support zone, and the first level of support is already broken. The 200-day simple moving average is placed at 17005. The index failed to register a follow-through day. An interesting observation is that the open interest was declined on rising days, but, on declining days today, the open interest is up. Most of the shorts were covered last week, and the fresh shorts built up on Monday.
In any case, the Nifty closes negatively on Tuesday, and the Bearish Engulfing pattern gets the confirmation for its implications. On a 75-minutes chart, a majority of the indicators have already given fresh sell signals. As stated yesterday, do not chase the long positions at least for another day. If the Nifty fails to get a confirmation for the Bearish Engulfing, it needs to close above the 17327. It is a wait and watche for decisive directional trades. We only got the clues for the future trend today.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
