Nifty woes continue for 5th day in row; reversal hopes alive

ANOTHER green opening ended up with a deep red candle. The benchmark indices witnessed sudden selling pressure in the afternoon session. The majority of indices fell over one per cent.

The Nifty lost over 300 points from the day's high. In the end, it lost 163.45 points and closed at 14,557.85. Nifty IT was the biggest loser by 3.09 per cent. Pharma index lost 2.32 per cent. FMCG, metal and consumption indices closed with flat to positive bias. All other sectoral indices closed with a loss. The market breadth is extremely negative as 1,462 declines and only 444 advances. IndiaVIX closed flat at 20.08.

The stock market is showing signs of exhaustion and topping formation. All the confluences of evidence show that the market is in a topping formation. Though yet to form a swing low, the way it is falling, and the opening highs are not sustainable for the past month, is an indication of distribution or profit booking. Even before the March 2020 fall, there were several days it behaved in the same manner. For the last 31 trading sessions, the Nifty was limited to a broad range of 15,200 – 14,600, barring a few days of unsustainable moves.

The Nifty lost about 575 points or 4.33 per cent during the last five trading sessions. It started with a big bear bar of 383 points range engulfing candle. There are four such big bear days of over 300 points fall in the last 17 sessions. This is certainly not bull market character. As it is trading below the 50DMA with five distribution days, the market can be categorised as uptrend under pressure. It breached the upward channel support too.

A move below the minor swing of 14,467 is a first significant indication of a reversal. A major swing is at 13,596 formed a day before the budget day. Now, it is important to fill the gap of post-budget 14,336-14,469. The Nifty declined for the fifth straight session. In recent history, the declining swings are limited to 5-6 days. So, the question is will it bounce from next onwards or not. Generally, any sharp move attracts a counter-trend rally or a bounce. Let us hope about that highly probable bounce next week. The bulls get strength only above 50DMA, otherwise the bears will continue to dominate the market.

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