Market correction around the corner
After forming a bearish engulfing candle on Tuesday, NSE Nifty formed lower low candles; The MACD gave a fresh sell signal; The RSI has received confirmation for its bearish divergence
image for illustrative purpose
On a derivatives expiry day, with increased volatility, the benchmark indices closed negatively for the third straight day. After opening with a positive bias, NSE Nifty declined by 51.80 points or 0.28 per cent by the end of the day and closed at 18,129.95 points. The Bank Nifty and FinNifty were the only gainers today, with 0.12 per cent and 0.32 per cent, respectively. The Nifty Pharma, FMCG were the top losers, with 1.27 per cent and 1.10 per cent, respectively. The PSU Bank index fell by 1.90 per cent because of the decline in SBI. All other sectoral indices were down by 0.18 per cent to 0.98 per cent. The VIX is closed at 12.79 after a big range. It oscillated between 11.13-13.10, which is the highest in recent times. The market breadth is negative as the advance-decline ratio is at 0.71. About 86 stocks hit a new 52-week high, and 59 stocks traded in the upper circuit.
The Nifty declined sharply after hitting the 21-week high. For the last three days, it has been forming strong bearish candles, as the opening highs were not sustaining. On a weekly chart, it is almost forming a bearish engulfing candle. As we expected, the mean reversion is going on now. Currently, the Nifty is trading just 0.31 per cent above the 20DMA. We have already forecast that the Nifty will test the 20DMA. This short-term crucial moving average is placed at 18,079 points. After forming a bearish engulfing candle on Tuesday, the Nifty formed lower low candles. The MACD has given a fresh sell signal. The RSI has received confirmation for its bearish divergence. The Elder impulse system has formed a bearish bar after March 24. There are enough signals available, which indicate that the market is due for a correction. The behaviour around the 20DMA (18079) is important now.
This crucial support has held to contain the further fall. The 23.6 per cent retracement level is also at a similar level of 18074. If the Nifty closes below this support, the next level of support is at 50DMA of 17647. The index is in the lagging quadrant as the momentum and relative strength are below 100, compared to the broader market index Nifty 500, in RRG charts. For now, there are clear signals available for a possible reversal. Only a close above the prior day’s high will be positive, and all bearish views will be negated. Avoid the long positions for now. A decline below 18,079 will attract further selling pressure.
(The author is Chief Mentor, Indus School of Technical AnalysisFinancial Journalist, Technical Analyst, Trainer, Family Fund Manager)
