Nifty forms strong bearish candle

The equities collapsed after a long weekend, with the broad-based selling pressure on Monday. Before collapsing, the benchmark index Nifty registered a new at 22,526.60 points for the third successive day. Soon after it declined by 160.90 points or 0.72 per cent and closed at 22,332.65 points. All the sectoral indices ended on a negative note. The Nifty Media index is the top loser with 2.91 per cent. The Nifty Metal, Realty, and Bank Nifty declined by 1.06 per cent to 1.58 per cent. The PSU Bank index is down by 1.57 per cent, and PSE has slipped by 1.62 per cent. All other indices closed with less than a percentage point loss. The market breadth is extremely negative as 2,050 declines and 596 advances. About 103 stocks hit a new 52-week high, and another 102 stocks hit a new 52-week low. As many as 261 stocks traded in the lower circuit. JioFin, HDFC Bank, Indigo, and Tata Chemicals were the top trading counters in terms of value.

The Nifty has erased the last week’s gain. It declined sharply with an extremely negative advance-decline ratio. Even though the volumes were lower than the previous day and below average, the index closed at an influx point. PSU banks and PSU stocks led Monday’s fall. The Nifty tested the 8EMA and bounced on intra-day short covering, but the bounce did not sustain till the end of the day. Finally, it closed below the 8EMA support. It formed a bearish engulfing candle and closed below the prior day’s low. The RSI is back to the below-60 level, and the MACD clearly shows a decline in the bullish momentum. RSI failure to sustain above 60 is a bigger weak signal. On a 219-point trading range, the India VIX is up by over five per cent at one point in time. The Implied Volatility (IV) also increased. As mentioned in the previous column, the daily trading range has increased significantly. The index has formed a strong bearish candle, and damaged the price structure as it closed below the prior resistance line and channel line. With all-round selling pressure, the Nifty closed at the day’s low. None of the sector indices were able to close positively. At lifetime highs, this kind of breadth and broader selling pressure are confirming our doubts about the low-volume rally. For now, the index must close above the 22,420 for an uptrend to continue. On the downside, it may test the 20DMA of 22,167 in the next 2-3 days. Avoid taking fresh, long positions.

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