Nifty moving in a down channel as bearish force persists

In view of the record level of inflation in the US and the Federal Reserve rate hike fears, the global and domestic equity market witnessed a sharp decline. The Nifty went down by 231.10 points or 1.31 per cent and closed at 17,374.75. The Nifty IT declined most by 2.72 per cent. The PSU Bank, Midcap, and Smallcap indices declined over two per cent. The Realty index went down by 1.98 per cent. All the sector indices declined 0.5 per cent to 1.5 per cent. The market breadth was extremely negative as 1591 declines and 459 advances were recorded. About 40 stocks hit a new 52 week low, and 142 stocks traded in the lower circuit. Adani Wilmar, Reliance and TCS are the top trading counters for the day.

The equity market failed to sustain the last three days' gain and closed below the prior day low. It formed a lower high and low candle on a weekly chart. The broader market sell-off is not just because of global cues but an inherent weakness. For the last two weeks, the index has been trading within the previous two weeks' range. By closing below the 50DMA, the Nifty has given a clear bearish signal. The Nifty is already holding six distribution days and added one more. These two factors sign that the trend is under pressure. The Nifty formed a triangle, which is a continuation pattern. A close below the 17,100 level will lead to a triangle breakdown, which has a probability of decline over 1,900 points or 11 per cent from the breakdown point. This is maybe scary, but the fact is that the Nifty is moving in a downward channel. The bearish momentum has increased, and the RSI declined below the 50 zone. By trading below 20 and 50DMAs, the Nifty lost its strength to move higher. As suspected yesterday, the exhaustion has proved right. Apart from adding a distribution day, the higher open interest indicates the short build-up.