Medium-term bearish signal for market

The domestic stock market nosedived and registered one of the worst declines in recent times. As the global markets melted down, the Indian markets too registered a black Monday. The benchmark index, Nifty, was down by 531.95 points or 3.06 per cent and closed at 16842.80. The VIX is higher by 23 per cent and closed at 22.98. All the sectoral indices ended with over 2.5 per cent declines, indicating deeper negative bias. The PSU Bank, Metal and Realty indices are down over five per cent. Bank Nifty, FinNifty, Media, Private bank, and Smallcap-100 indices down by over four per cent. Nifty Pharma outperformed by declining by just 1.91 per cent. Only TCS closed in the green in Nifty. The broader market breadth is extremely negative as 2,134 declines and just 245 advances. As the sell-off is serious, 106 stocks hit a new 52-week low and 328 stocks traded in the lower circuit. TCS, Adani Wilmer and HDFC were the top trading counters.

The Nifty has registered the biggest fall in 2022. It declined below the prior swing lows. It has broken several supports and registered a channel breakdown. It retraced 78.6 per cent of the 20th December to 18th January rally. Notably, the 21EMA declined below the 50DMA, a medium-term bearish signal for the market. With today's over 500 points fall, the Nifty formed a lower swing and signalled the fresh decisive downtrend. The 50DMA began its downtrend. It opened with a 300 point gap down, no recovery till the end. It closed near to the day low. The index registered another distribution day, and the count has increased to seven distribution days. It is also trading below the 50 and 100 DMAs. It also declined more than 8 per cent from its recent lower peak, and many stocks have breached crucial support levels. With this, the market status has changed to a downtrend.

Most stocks in the broader market have witnessed technical damage as they fell below the basing formations and the logical support levels. Currently, it is not conducive to hold the stocks which are trading below their 50DMA and 200DMA.

The RSI declined below the 40 zone, and the MACD histogram showed a significant increase in bearish momentum. The negative directional movement -DMI is above the prior swing high shows that the bears are tightening the grip on the market. Now any pullback effort has to fill the gap or at least close above the 17100 level. Otherwise, any small bounces are prone to selling pressure. As the market status changes to the downtrend, it is better to realign the portfolios, and all weaker stocks need to be exited to protect the capital.

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