Nifty volatility points to bearish turn

THE stock market reversed its morning session gains as the severe selling pressure hit the market. The broader market sell-off pushed all the sectoral indices into the losses. After opening with an 87 points gap up it mostly traded in the rage till the afternoon session. The last 90 minutes of trading witnessed massive selling pressure. The Nifty lost 54.35 points and closed at 14,590.35. PSU Banks, Metals, Realty indices were down by over two per cent. The Bank Nifty fell by 1.1 per cent and the Pharma index was down by 1.43 per cent. India VIX went up by 2.92 per cent to 22.18. The overall market breadth was extremely negative. As many as 1,296 stocks closed with losses and only 627 stocks were able to close in positive territory.

After hitting another record lifetime high, the Nifty did not sustain high levels in the last hour. In view of the massive sell-off in the late session, the Nifty tested the previous day's low. It formed a bearish dark cloud candlestick pattern on a daily chart. It took support at 5EMA. With today's fall, the bearish momentum has increased. Interestingly, all the sectoral indices fell sharply. The Nifty opened with a 90 point gap up and it sustained at the higher levels till 2pm, as the weekly derivative settlement and the sharp sell-off triggered the market. It filled the gap, also tested the previous day's low.

After breaching 38.2 retracements on an intraday basis, it closed below the 23.6 retracement level. It also took support at 34 periods' average on a 75 minutes chart.

Surprisingly, the last three days of upward move did not show any improvement on the bullish side.

If, the Nifty sustains below today's high, the negative divergence in RSI also confirms the intermediate top is in place. Only above today's high or 14,655, the Nifty is positive. The support is placed at 14,490-14,655 zone. If the Nifty closes below the 14,455, the market reverses its uptrend towards the mean average of 20 DMA. The MACD histogram suggests that the bearish momentum has increased. On a 75-minute chart, the MACD is about to give a sell signal. The RSI once came back from an overbought condition. Certainly, it is time to be cautious as the volatility increases. Next six days of trading will be very difficult unless we follow the risk management.

(The author is a financial journalist, technical analyst, trainer, family fund manager)