Nifty forms bearish engulfing candle

On neutral monetary policy day, the markets declined as guidance, and the commentary is not encouraging. The Benchmark and a majority of sectoral indices declined on Thursday. NSE Nifty declined by 91.85 points or 0.49 per cent. Only Nifty Energy and Metal indices gained by less than 0.40 per cent. The Nifty Realty and Media indices declined by 1.59 per cent and 1.52 per cent. Nifty IT and Pharma indices were also among the top losers, with 1.12 per cent and 1.03 per cent, respectively. The FMCG, Auto, Bank Nifty and FinNifty declined by over half a per cent. The declines were outnumbered on Thursday, and the advance-decline ratio is at 0.55. About 107 stocks hit a new 52-week high, and 74 stocks traded in the upper circuit. HDFC Bank, ICICI Bank, and PayTM were the top trading counters on Thursday in terms of value.

Nifty formed another higher high bar. But, at the closing, it closed below the previous day's low, which was strongly negative. In fact, the previous day's breakout was failed. Thursday’s candle structures indicate the rejection of a bullish move. The index opened on a flat note and moved higher above the previous day's high. After the policy statement, it traded positively for a brief period. But, with the sudden profit booking, the index declined sharply. A recovery effort did not sustain. The index declined 162 points from the day's high and formed a bearish engulfing kind of candle. Wednesday’s very positive market breadth turned negative. At the same time, on Thursday, almost all the sectoral indices closed in with losses.

The U-turn market scenario index is yet to give a bearish signal. There several signals or patterns failed in the recent past. The RSI has formed another negative divergence. MACD failed to continue Wednesday’s momentum. The support of 8EMA -18,586 is crucial for now. Only a close below this will we get the confirmed bearish signals. The 20DMA is placed at 18,431. The prior minor low is at 18464. Unless these series of supports were taken off, we could not be bearish. Thursday’s price actions are only an early signal of internal weakness. On a weekly basis, the Nifty has formed an indecisive candle, which looks like a shooting star. If the index forms another lower low candle and closes below 18,531, expect bears to dominate the market. For now, avoid taking fresh long positions, and wait for the reversal signal.

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