Nifty forms a big Shooting Star candle

A sharp sell-off triggered by HDFC Bank’s earnings led to a nosedive in the broader market. HDFC Bank alone contributed 242 points to the fall in the Nifty, which declined by 460.35 points or 2.09 per cent and was set at 21,571.95 points. The Nifty IT is the lone survivor with a gain of 0.64. All the sectoral indices succumbed to major losses in recent times. The Bank Nifty and Fin Nifty are the top losers, with 4.28 per cent each. The Metal index is down by 3.13 per cent. All the other sectoral indices were down by 0.5 per cent to 2.70 per cent. The volatility index, India VIX, is up by 11.11 per cent to 15.08. The market breadth is extremely negative as 1,810 declines and 739 advances. About 94 stocks hit a new 52-week high, and 89 stocks traded in the lower circuit.

HDFC Bank, IRFC, ICICI Bank, and Axis Bank were the top trading counters today, in terms of value.

Finally, the benchmark index comes out of exuberance and over-extended rally. With the Bank Nifty registered the worst fall in two years, the Nifty closed below the 20DMA for the first time after November 3. The Nifty also registered a sharp decline after December 20. The index has formed a big bearish engulfing bar on a weekly time frame. The RSI too declined into the neutral zone after November 20. Importantly, the Nifty is reacting from the confluence of channel resistances. The channels were drawn by connecting the recent major lows.

The Nifty formed a big Shooting Star candle and approached the crucial support of the recent base low at 21,641 points. As mentioned earlier, a close below this level will give a clear reversal signal. It is also the previous week’s low. If the Nifty closes below the 21,747 points, then it will form a bearish engulfing candle. The index may test the 21,175 level in the near term.

As we expect the top in January, as history says, next week’s negative close will also confirm the reversal. On Wednesday, the index closed at the day’s low with a massive volume and added the distribution day. Now, the index is holding four distribution days. Now, the distance between the Nifty and the 50DMA is reduced to just 3.68 per cent. In any case, if the index closes below 50DMA of 20,807 points with a distribution day count of more than 5 or 6, the market status will be changed to bearish. The bearish divergence in the RSI got confirmation for its implications on Wednesday by closing below the previous low. It formed lower lows and lower highs.

The MACD histogram shows an increased bearish momentum. The momentum at the bottom of the RRG graphs shows that the bulls are losing control of the trend. In a nutshell, the index breached the first line supports and approached the crucial support. Any further disappointment on the earnings front, we may see more bear attacks. Stay away from the long positions as long as the index trade below Wednesday’s high of 21,851 points.