Nifty forms strong bearish candle

On RBI policy day, the market was collapsed led the banks and financials. NSE Nifty declined by 212.55 points or 0.97 per cent and closed at 21,717.95 points. The FMCG was the top loser with 2.06. The Bank Nifty and FinNifty were down by 1.76 per cent, and 1.85 per cent, respectively. The Energy, PSU Bank, and Media indices also gained by 1.05 per cent to 1.99 per cent. All other sectoral indices were down by 0.2 per cent to 2 per cent. The market breadth was negative as 1,512 declines and 1,057 advances. About 280 stocks hit a new 52-week high and 113 stocks traded in the upper circuit. Yes Bank, SBIN, HDFC Bank, and Trent were the top gainers in terms of value.

The Nifty has formed a strong bearish candle and closed at the five-day low. It also tested below the 20DMA level on a higher volume. As the short-covering in the last 30 minutes, the index was finally able to close above this key moving average support. The index has registered a fresh distribution day, as the index declined by over a per cent with higher volume. Importantly, Thursday's high volume in the last one month and strong bearish candle have confirmed our suspicion of a distribution phase or a Stage-3. Even though the price is moving higher on alternate day gaining streak, the index lost the relative strength. The index has broken the rising trendline support on the hourly chart and entered into the bearish zone. Now, the index is just 1.45 per cent above the 50DMA of 21,407 points, which is just below the rising channel support line. In any case, if the Nifty declines below 21,580 and 21,407 levels expect a sharp decline. The condition is that the bears must dominate the market for three days.

The MACD has given a fresh bearish signal. The RSI failed to move above 60 or into the strong bullish zone. Even the Elder’s impulse system has formed a fresh strong bearish bar. The relative strength is very poor and much below the 21 EMA, showing an underperformance. The intraday range was over 330 points, and expect an inside bar on the weekend, as long as it holds the 20DMA of 21,679 points. If the Nifty declines below 20DMA, we can assume that Wednesday’s high of 22,053 is the intermediate top. If the index closes below 21,560, which is a 10-week average, it will be negative for the ongoing trend. For an upside, the index must close above 21,834 points. Otherwise, the risk-reward ratios are not positive.

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