Nifty forms bearish engulfing candle

For now, the 21,649-21,964 zone, Monday’s range, is the crucial support and resistance. Either side of the breakout will result in the directional bias. In any case, the Nifty closes below 21649, and the next immediate support is at 21500, which is earlier base support

The equity benchmark indices fell sharply, as the intense selling pressure in the banking and financial services stocks. NSE Nifty closed with 82.10 points or 0.38 per cent decline and closed at 21,771.70 points. Bank Nifty and FinNifty are down by 0.32 per cent and 0.58 per cent, respectively. The FMCG and IT indices were down by 0.76 per cent and 0.43 per cent, respectively. The Infra and Media indices were also down by less than half a per cent. The PSE and CPSE indices were advanced by 1.96 per cent and 2.05 per cent. All other indices declined by less than half a per cent.

The India VIX is up by 6.26 per cent to 15.61. Market breadth was negative as 1,531 declined and 1,086 advanced. About 311 stocks hit a new 52-week high, and 188 stocks traded in the upper circuit. NHPC, Jio Finance, SJVN, and Tata Motors were the top trading counters on Monday in terms of value. Our suspicion about Friday’s actions is now a reality. The Nifty has formed a bearish engulfing candle with a high volume and closed below the prior day’s low. A bearish engulfing candle at a lifetime high is not a good signal. Last Friday’s surprise sharp upside move failed to get a follow-through day. It was back into the rising channel and into the base.

The RSI’s bearish divergence is clearly visible now. RSI failed to surpass the 60 zone to enter the bullish zone. After opening with a positive gap, it traded mostly in the first hour's range. The sudden selling pressure in the later afternoon session led by banks and financials dragged the benchmark index to the negative zone. It closed near the day’s low. Though it is still above the 20DMA, the last two days of price action have not given me the confidence to take long positions.

As the index closed below the previous day’s low, the price structure was damaged, and bull strength almost vanished. It may test the 20DMA of 21,649 points, which is the immediate resistance. For now, the 21,649-21,964 zone, Monday’s range, is the crucial support and resistance. Either side of the breakout will result in the directional bias. In any case, the Nifty closes below 21,649 points, and the next immediate support is at 21,500 points, which is earlier base support. For now, avoid long positions.

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