Nifty forming lower highs, lower lows

The equity market tumbled further on a March derivative expiry day. All the sectoral indices fell sharply for the second consecutive day.

The Nifty fell by another 224.5 points and closed at 14,324.90. The intraday bounce 200 points from the low did not sustain at the end. Nifty Metal is the only index closed, just flat. The media index fell by 3.06 per cent.

Nifty IT, Auto, FMCG and PSU banks indices declined by over two per cent. The overall market breadth further worsened with 1,544 declines and just 367 advances.

During the last five trading sessions, the Nifty has moved in 614 points range. It did not sustain the first three days of positive sentiment. The Nifty lost 232.95 points in the last five sessions. In

the March series, it lost 772.5 points or 5.11 per cent. It is forming lower highs and lower lows during the last month, a bearish sign. It filled the gap of February 2 and closed just below it, is another bearish signal.

Earlier on March 18, also it tested the gap area but failed to close below. It also tested the 61.8 retracement level (14,297) of the budget rally today. Weekly closes below this will a confirmation for double top pattern breakdown. On a monthly chart, the Nifty forming a shooting star candle.

Interestingly, in January, also it formed a shooting star, but failed to get a confirmation. February also formed a long upper wick candle, which resembles a shooting star. These back to back bearish patterns at the lifetime high are signalling market top.

There are 16 out of 21 market tops formed in the January - March quarter. This time, too, the recent high of 15,432 could be an intermediate top for now. Till now, the whole March month, the Nifty moved within the February range. It failed to make a new high during the month.

On the weekly chart, it is closing at the lowest point. It closed at the lowest level after 25th January. Interestingly, after 1st June, the 50DMA started trending down since Wednesday. The RSI is below 40 and enters the bearish zone.

The Nifty trades 3.58 per cent below the 20DMA. There are only in three incidents that the Nifty traded at this distance from 20DMA. The rising ADX (21.92) indicates the strengthening bearish trend.

As the Nifty trading below two short to medium-term averages, it is better to avoid fresh long positions and take out the profits in the portfolio. As long as it trades below the 50DMA, the downside targets are placed at 13,990-13,943. The Nifty take a rest at this level before taking another trending move.

(The author is a financial journalist, technical analyst, family fund manager)