Nifty forms bearish engulfing candle

The equities suffered an intense profit booking on the selective counters. NSE Nifty was down by 76.10 points or 0.35 per cent and closed at 21,665.80 points. Nifty Pharma is the top gainer with 2.46 per cent. The Media, Energy, and Metal indices gained by less than 0.50 per cent. But the Nifty IT, Realty and Private Bank indices closed with over one per cent decline. All other indices ended on a negative note. The India VIX also declined by 0.68 per cent to 14.58. The market breadth is negative as 1,310 declines and 1,226 advances. About 210 stocks hit a new 52-week high and 142 stocks traded in the upper circuit. HDFC Bank, Idea, ICICI Bank and BHEL were the top trading counters in terms of value.

The Nifty closed at a four-day low and registered a distribution day. It formed a bearish engulfing candle after two indecisive candles. With Tuesday’s move, we got a clue for the short-term direction. Now, the bearish divergence in RSI is clearly visible. Finally, the MACD has given a fresh bearish signal. We can now assume that the 21,834 is the short-term top. The technical evidence almost confirms it. The Nifty tested the 8EMA support and bounced in the afternoon session. The Bollinger bands are contracting and the scope for an upside move is very limited. The Nifty also tested the previous breakout level. On Monday, the Nifty registered a failed breakout on an hourly time frame. Tuesday, it has broken down the tight range and retested the breakdown point. But in the last formed two indecisive bars and were unsuccessful in moving above the breakdown level. It closed in the hourly moving average ribbon. As stated earlier, a close below 21,587 (8EMA) will confirm the counter-trend consolidation. The 20DMA is 21,259 points, and the prior week’s low of 21,329 points will act as a crucial support zone. Overall, the market condition is not conducive to building new long positions in the index. The Pharma stock were limelight on Tuesday, in the process of sector rotations. Be selective on the stock

selection.

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