Long unwinding right strategy now
Strong bearish signal is available for aggressive shorting; Nifty has escaped distribution day on Monday as volumes were lower than previous day; The mean reversion is in progress
image for illustrative purpose
The equity benchmark indices declined, as the index heavyweights Reliance and ITC were down after the demerger news. NSE Nifty declined by 72.65 points or 0.37 per cent and closed at 19672.35 points. The Nifty Pharma and Small-cap indices were the top gainers with 0.41 per cent, and 0.37 per cent, respectively. The Nifty FMCG index is the top loser with 1.72 per cent. All other sectoral indices closed with less than 0.50 per cent declines. The India VIX is up by 1.46 per cent to 11.65. The market breadth is negative as the advance-decline ratio is 0.93. About 172 stocks hit a new 52-week high, and 77 stocks traded in the upper circuit. Reliance, HDFC Bank, ICICI Bank, and ITC were the top trading counters on Monday.
The Nifty declined for the second consecutive day, with all-round selling pressure. It closed at five day low and the lowest point of the day. As expected, the mean reversion is in progress. The distance between 20DMA and the Nifty has declined to 1.28 per cent. The Bollinger bands began to contract and show signs of a continuation of a counter-trend. After 27th June, the Nifty closed below the 8EMA, which means the first level of support was breached. The next level of meaning full support is at the previous week’s low of 19,562 points. The 20DMA support is at 19,422 points. This 19,422-562 zone of support is crucial for the current uptrend. The index has escaped the distribution day on Monday, as the volumes were lower than the previous day.
The RSI closed below the prior low, and MACD is about to give a fresh bearish signal. If the RSI closes below the 55 zone will be further negative for the index. Currently, the index is 4.11 per cent above the 50DMA. The decline should extend beyond three days for a bearish confirmation. The index did not extend the fall beyond three days in the current rally. At the same time, none of the declines was more than 1.7 per cent. The last two days’ decline is 1.67 from the last Thursday’s high. If the Nifty declines another two days and more than two per cent means, it will test the 20DMA. We need to watch price behaviour around 20DMA. Even now, there is a strong bearish signal available to go for aggressive shorting; long unwinding will be the right strategy in the current scenario.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
