Indices are near the oversold zone

Renewed selling pressure in global market futures dented the domestic market’s sentiment. NSE Nifty declined by 250 points from the day’s high and closed below the psychological level of 17,000 points. It declined by 71.15 points or 0.42 per cent and settled at 16972.15 points. The Bank Nifty and FinNifty declined by 0.91 per cent and 0.77 per cent, respectively. The Media index is the top loser with 1.22 per cent. The Metal index is the top gainer with 1.80 per cent, and the Pharma is up by 0.31 per cent. PSE and CPSE indices also closed with moderate gains.

All other sector indices were down by 0.05 per cent to 0.85 per cent. The VIX is up by 0.48 per cent to 16.30. The market breadth is negative as 1,091 declines and 832 advances. About 181 stocks hit a new 52-week low, and 66 stocks traded in the upper circuit. HDFC Bank, Reliance, and Adani Enterprises were the top trading counters on Wednesday in terms of value.

The Nifty tested the initial target of 17,178 points and reached above the 17,200 level. The most optimistic opening did not sustain even for an hour. The index declined continuously to the end. It formed lower high and lower low candles on the hourly chart. It failed to move the prior bar high, showing the bear domination. The Nifty closed below the previous day’s low is a big negative for now. On a weekly chart, the index is now decisively below the 50 per cent retracement level of the prior uptrend. The Weekly MACD line closed below the zero line.

The only positive fact is that the index closed on the channel support line. Now, the Nifty is 2.69 per cent below the 200DMA and 3.37 per cent below the 200EMA. The 20 DMA closed below the 200EA. After last year June, the distance between the index and 50DMA was highest at 4.13 per cent. On 17 June 2022, the distance was 6.93 per cent. The distance between the price and the average increases; the general tendency is the indices witness the mean reversion, which means, the prices try to be near the averages. Except for 200DMA, all the averages are in the downtrend, which is another big negative for the market. Unless the Nifty closes above the prior bar high, we can’t be positive. At the same time, As the indices are near the oversold zone, it is better to trade with a light position size. We can only manage the risk; rewards are only in our hands if we realise them.

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