Nifty formations signal downside momentum
It almost tested the 20 DMA, formed an engulfing bar; MACD line failed to close above the zero line for bullish confirmation
image for illustrative purpose
Reserve Bank of India raised the interest rates to curtail inflation but did not digest the decision and reacted negatively. It saw a huge move soon after the policy announcement. Later it moved in the direction of the minor trend. The benchmark index, Nifty, lost 60.1 points or 0.37 per cent and settled at 16356.25. On a policy day, the Bank Nifty oscillated over 600 points and settled with just 49.85 points. The FMCG index is the worst performer on Wednesday, with a 1.05 per cent decline. The Media index, up by 1.49 per cent, is the top gainer. The Nifty IT, Pharma, Auto, Metal and CPSE indices are up by less than half a per cent. The other indices are modestly down. The Market breadth is negative as 1189 declines and 864 advances. About 51 stocks hit a new 52 week low, and 65 stocks traded in the upper circuit.
The Nifty closed below the gap area support and near to the previous day's low. It also closed below the 38.2 per cent retracement level of the current upswing. With this, the counter-trend rally is ended almost. On Wednesday, it almost tested the 20 DMA and formed an engulfing bar. The momentum is completely on the downside, and the MACD line failed to close above the zero line for bullish confirmation. With Wednesday's decline, the 200 DMA also entered into a downtrend. The 50DMA is already in the downtrend, and it is distancing further from the 200 DMA. As stated earlier, the counter-trends end with less than 50 per cent retracements. The current swing failed to surpass even 38.2 per cent retracement and the 50 DMA. The RSI is declining and moved below its 9 and 13 periods average. Currently, the last hope for the market is 20 DMA support, which is at 16261. A close below this level is a big negative for the market. Below this, before testing lower than the previous low, it may take support at near 15900 zone. As there is weekly expiry ahead, the volatility will increase further. Stay cautious and avoid long positions now.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
