Nifty forms bearish engulfing candle
The index failed to reach 20DMA; Importantly, Tuesday’s decline again with a higher volume and sustain in moving average ribbon indicates indecision about trend
image for illustrative purpose
The equity market traded nervously before the RBI monetary policy. NSE Nifty declined by 26.45 points or 0.13 per cent and closed at 19,570.85 points. The PSU banks rallied 3.37 per cent. All other indices were gained or lost by less than a percentage point. The Metal index is the top loser with 1.17 per cent. The Media, Pharma, and Consumer Durables indices gained over half a per cent. The India VIX is up by 2 per cent. The advance-decline ratio is 0.97, and the breadth is neutral. About 154 stocks hit a new 52-week high, and 64 stocks traded in the upper circuit. HDFC Bank, ICICI Bank, Adani Enterprises, and IRFC were the top trading counters on Tuesday in terms of value.
The Nifty has formed a bearish engulfing candle after two days of bounce. It closed below the 8EMA, which is near-term negative. The index failed to reach the 20DMA. Importantly, Tuesday’s decline again with a higher volume indicates renewed distribution. Though it escaped a distribution day, it gives a caution signal. It retraced 38.2 per cent of the prior decline and closed on it. The 20DMA and the 50 per cent retracement levels are at similar levels, at 19,644. The sloping trend line resistance and the Anchored VWAP resistance are also at the same level. So, this strong resistance has to be cleared for an upside move to continue.
In any case, the Nifty declines below the 19,562 points, which was supported previously, will resume the decline and can test the 19,300-345 zone of support. Below this, the 50DMA support at 19,181 points will be a strong and lifeline support. The RSI is struggling to cross above the 55 zone. The MACD line is still declining. For the last two days, the index has been sustained in the moving average ribbon, which is an indication of indecision about the trend. The hourly MACD line is flattened; a decline below the zero line is negative for the index. The ADX line is declining sharply, showing weakened trend strength. As mentioned earlier, it is better to remain neutral till the RBI policy. It may not breach the key levels in a hurry.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
