Latest fall spoils strong bullish technical structure

What’s Up

♦ Nifty opened with 153-point huge gap down

♦ It failed to recover from opening lows

♦ 79 stocks hit fresh 52-wk high and 61 stocks traded in upper circuit

♦ Derivatives data indicates long unwinding in Nifty

The equity market collapsed, with intense selling pressure across the board. NSE Nifty declined by 231.90 points or 1.15 per cent and closed at 19,901.40 points. Only PSE and CPSE indices were closed positive with 0.17 per cent and 0.61 per cent. The Nifty Metal index is the top loser with 1.63 per cent. The Bank Nifty, FinNifty, and Realty indices are down by over one percent. All other sectoral indices were closed down by less the one percent. The market breadth is negative. About 79 stocks hit a fresh 52-week high and 61 stocks traded in the upper circuit. HDFC Bank, Reliance, and ICICI Bank were the top trading counters in terms of value.

The markets nosedived from an overbought and overextension zone. We have cautioned about this eventful decline. The Nifty opened with a 153-point huge gap down. It failed to recover from the opening lows. On an hourly chart, the index has formed a lower-high candle. The last hour short-covering did not help to recover from the lows. For the first time, the Nifty registered an over percentage point decline in recent times. It also registered a fresh distribution day, as the decline is with higher volume than the previous day, and above the average. Currently, the index is trading just 1.17 percent above the 20DMA. As we stated earlier, the index began its mean reversion. Today’s fall has damaged the strong bullish technical structure. The RSI declined into the neutral zone.

The MACD histogram shows a significant decline in the momentum. The previous week’s low (19,865) or the 38.2 per cent retracement level (19,840) is the immediate support level for the index. Below this, the index may test the 20DMA of 19,671 points, with a high probability. The Bollinger bands began to contract and indicate consolidation around the 20DMA. The derivatives data suggests that the Nifty has witnessed a long unwinding, and the Bank Nifty has seen a fresh short build-up. About 93 stocks in the derivatives segment witnessed a short-built up. In these conditions, it is better to avoid all taking long positions.

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