Nifty indicators signal weakening strength
The index formed another lower low and breached last two-week low; The Elder impulse system has formed a bearish bar after 23rd June
image for illustrative purpose
Across the board, selling pressure with a downgrade of the USA economy by the Fitch rating agency rattled the equity market on Wednesday. Barring FMCG, and Pharma, all sectors declined by more than percentage points. NSE Nifty declined by 207 points or 1.05 per cent and closed at 19,562 points. The PSU Bank, CPSE, PSE, and the Metal indices were the top losers with over two per cent decline. Nifty Auto, Energy, Media, and the Small cap indices are down by over 1.5 per cent. The FMCG and the Pharma indices registered a minimal decline of 0.25 per cent and 0.39 per cent. The market breadth is extremely negative, as the advance-decline ratio is at 0.39. About 117 stocks hit a new 52-week high, and 66 stocks traded in the upper circuit on Wednesday.
The Nifty registered the sharpest decline since March or in the current uptrend. It almost tested the rising channel support and bounced in the last hour. Even after over 110 points bounced as short covering, the Nifty decisively closed below the 20DMA. The Bollinger bands flattened, indicating contraction in the price movement is on. The index has formed another lower low and breached the last two-week low. The Elder impulse system has formed a bearish bar after 23rd June. The distance from the 50DMA narrowed to just 2.27 per cent, this was 6.05 per cent on 20th July. Currently, the index is 0.49 per cent below the 20DMA. Now, Wednesday’s high of 19,678 points and the 20DMA of 19,622 points are the crucial resistance levels. On the downside, the channel support is at 19,430 points. We need to watch the behaviour carefully around the 19,430-622 zone. A close above 19,680 points will lead to the end of counter-trend consolidation and improve the probability of breaking out of the sloping channel.
Wednesday’s volumes are less than the previous day but above average. The index escaped the distribution day. The RSI shifted its range in the neutral zone decisively. It declined below the previous low, which is an indication that the index is losing strength in the trend. The Relative Strength of the Nifty, compared to the broader market index Nifty-500 declined sharply. In the current conditions, a recovery from the 19,430 points is crucial to sustaining the uptrend intact. For an uptrend to continue, the index has to register another two decline days. The VIX is sharply up by 9.68 per cent to 11.28, which is also a caution signal for the bulls.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
