Further downfall likely

The domestic equities witnessed a sharp decline as the selling pressure was across the board. The benchmark index Nifty erased all the previous day's gains. It declined by 186.20 points or 1.01 per cent and closed at 18199.10. Nifty Pharma is the top gainer with 2.39 per cent, and IT was up by 0.53 per cent. All the sectoral indices were down. The Metals and BFSI sectors led the fall on Wednesday. The Nifty Metal index is a top loser with 2.32 per cent. The Bank Nifty was down by 1.71 per cent and FinNifty declined by 1.55 per cent. Barring one or two sectors, all the other sectors were down by over a percentage point. The market breadth is extremely negative as 1681 declines and just 257 advances. About 59 stocks hit a new 52-week low, and 140 stocks traded in the lower circuit. This data point shows the broader market's pain. All the Adani group stocks declined over 3-6 per cent. Adani Enterprises, Reliance, and ICICI Bank were today's top trading counters.

As we suspected on Tuesday, the low-volume recovery did not sustain. The Nifty has formed one of the big bearish candles in recent times. It closed exactly on the support of the rising trendline drawn from the 30th September low. The previous swing low and the 50DMA were almost tested today. It is just 0.31 per cent above the 50DMA. The Nifty declined below the 10-week average. Today's candle is also bearish, engulfing, and it closed below the prior day's low. The index also tested the neckline resistance of the Head And Shoulders pattern. In the last four days, it tested the neckline thrice. As the retest of the neckline is done, we can see a further decline in the index.

As we projected earlier, the Head And Shoulders target and the 61.8 per cent retracement level of 17565 is a possible target now. The RSI declined below the previous swing low and decisively below its 9-period average. The MACD line sharply declined and reached near the zero line. Today's decline with higher volume than the previous day. The Nifty registered another distribution day. In any case, if The Nifty closes below the 50DMA and the prior swing low are at the same level of 18133, the bears will dominate the market. Today's low is the rising trendline support. The 18133-162 will be a key support for Thursday's weekly expiry. The Open Interest rose by 5.62 per cent, showing that fresh shorts were built up in the system. As the volatility increases, it is better to apply prudent risk management methods.

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