Nifty forms big bearish candle

Mkt Breadth Turns negative

• 358 advanced
• 2,159 declined
• 198 stocks hit a new 52-wk high
• 164 stocks traded in lower circuit
• VIX up by 4.2%
• MACD line has also declined
• The RSI declined to the 68.25 level

The equities were nosedived on an intense profit booking. The benchmark index Nifty opened at a new lifetime high and declined to a four-day low. It was down by 302.95 points or 1.41 per cent and closed at 21,150.15 points. This is the biggest fall in the recent times. All the sectoral indices were closed negatively. The FMCG index is an outperformer with just a 0.33 per cent decline. The Media index is down by 5.11 per cent, which makes it the top loser. All other indices declined 1-4 per cent today. The market breadth is extremely negative as only 358 advance and 2,159 decline. The India VIX is up by 4.2 per cent to 14.45. About 198 stocks hit a new 52-week high, and 164 stocks traded in the lower circuit. HDFC Bank, IRFC, Reliance, and DOMS were the top trading counters today in terms of value.

The Nifty has engulfed the previous three days of price actions and formed a big bearish candle. It filled the last Friday’s gap. Tuesday’s decline in volume, which was higher than the prior two days, registered a distribution day. Now, the index holds two distribution days. As we cautioned, the Nifty finally gave the weaker signals by closing below the Friday low with high volume. The index also closed below the 8EMA. It declined by 505 points or 2.34 per cent from the day’s high. Now, we can’t expect the market to move higher without proper consolidation for the next 2-3 weeks.

It may correct towards 23.5 per cent (20,865) and 38.2 per cent (20,478) retracement levels. It may form a Flag or pennant pattern in this counter-trend consolidation. The 20DMA is at 20,639 and may act as a crucial support. Now, a close above 21,362 is positive and will resume the upward move. As the index engulfed the previous three days of price action, it may form an inside bar tomorrow. However, it may fill the 14th December gap in the next 2-3 days. The RSI finally declined from the extreme zone to the 68.25 level. The MACD line has also declined, and the histogram shows a momentum loss. On an hourly chart, the index is below the moving average ribbon and the MACD line is close to the zero line. It indicates further weakness is a possibility. For now, book the profit on the table and stay on the sideline. After a consolidation, we may get good opportunities.

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