Is market heading for a major correction?

The late-night Fed comments dented the market sentiment. All the sectoral indices ended with losses. The benchmark index Nifty declined by 245.40 points or 1.32 per cent and closed at 18414.90. The Nifty IT and Media indices were the worst performers, with 2.11 per cent and 2.08 per cent. The Metal, Bank Nifty, FinNifty and Realty indices were down by over 1.20 per cent. All other sectoral indices were down by 0.5 per cent to one per cent. The market breadth is extremely negative as 1356 declines and 555 advances. About 65 stocks hit a new 52-week high, and 68 stocks were traded in the upper circuit. HDFC Bank, PNB, Yes Bank were the top trading counters on Thursday.

The Nifty erased three-day gains with a big bearish candle. It decisively closed below the 20DMA and also the lowest closed since November 23. On a 1.32 per cent decline, day volumes were higher, and the index registered a distribution day. Currently, the Nifty holds three distribution days. Today's net decline is the highest in recent times. It tested and closed below the 18442, which is an earlier flat base breakout level. With today's decline, we can consider the prior day's high of 18696 as the lower high. If the Nifty closes or moves below 18345, it will confirm the short-term downtrend. Interestingly on a weekly chart, the index is forming a Shooting Star candle and trading at the previous week's low. In such a case, we can also consider the all-time high breakout is a failed one because the index has been below the breakout level for two consecutive weeks. The next level of support is at 18114, which is another minor swing low. The current price structure is also looking like a head and shoulders at the top, and the neckline support is placed at today's low.

The pattern target is almost 650 points lower. Let us watch the 18345-382 zone of support. A close below this support means we are heading for a meaningful correction. The RSI declined below the 50 zone is and closed on the support line. The MACD histogram shows sharply increased downside momentum. The Elder impulse system also formed a strong bearish candle. Now the 50DMA is just 1.93 per cent away at 18044. A decline below this and an addition of another 2-3 distribution days means we are heading for a major correction. Only a move above 18696 will negate all bearish bias. For now, it is better not to be on the long side.

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