Market Enters 'Sell On The Rise' Mode

THE renewed fears about second wave of Covid-19 and lockdown rocked the stock markets. The 'Black Monday' selling pressure across the board has created tremors in the market. The Nifty fell sharply by 524.05 points and closed at 14,310.80 points. The PSU Bank, Media, Realty, Metal, Auto and the Bank Nifty are the worst hit with five per cent to over nine per cent fall. Pharma index, which traded positively till afternoon, finally closed with just 0.26 per cent loss. All other sectoral indices declined by over two per cent. Only four of 50 stocks in Nifty and derivative stocks settled positively. The market breadth was exceptionally negative as 1,740 declines and only 241 advances were recorded.

The Nifty tested the important supports. It witnessed the biggest fall over 500 points after February 26. It breached the March 25 low and tested the 150DMA. As we are suspicious about the market up moves in the current consolidation. After several efforts, the Nifty failed to close above 14,880 resistance. And the price structure indicates that there are very grim chances of breaking out of a bull flag pattern, which I mentioned last week.

The most important aspect of today's fall was that it has breached the upward channel drawn from the March low on a weekly chart. Though it is the beginning of the week, the market has signalled that a weekly closing at the current level is enough to give a very serious bearish signal. It also closed below the 20-week moving average. The market has turned to sell on the rise instead of buy on dips.

An intraday bounce is possible, but not trustworthy to go long. As the truncated week is on the cards, the Nifty will have a very difficult task to fill today's gap. In case, it opens with a positive gap, it may form an inside bar tomorrow. In such scenario, today' high and low will act as resistance and support. On the downside, fresh selling pressure will emerge below 14,265 points.

With today's fall, the market is in March 2020 kind of conditions. As Maharashtra and other states are planning for lockdowns or very stringent social distancing measures, the market fears loss of business and a slowdown in the economy. Major metro cities like Delhi, Bangalore and Pune are witnessing a rapid increase in new cases. There may not be a national lockdown, but even the major cities lockdown will severely affect the economy. The renewed Covid rapid spread may slow down the recovery process too.

As the market fell over 3.5 per cent and near the very crucial support level, it is time to be cautious and restructure the portfolios.

(The author is financial

journalist, technical analyst, family fund manager)