Now, Nifty coming out of over-stretched condition

The distance from the 50DMA is narrowed to just 1.09%, which is at 24,591pts. In any case, if the index declines below the 50DMA and adds distribution days, expect a more severe correction. For now, the 24821-591 is the support zone

With the broader selling pressure, the benchmark indices declined sharply. NSE Nifty registered a sharpest decline of 292.95 points or 1.17 per cent and settled at 24,852.15 points. All sectoral indices were closed negatively. The PSU Bank index was the top loser with 3.57 per cent. The Oil and Gas and PSE indices are down by over two per cent. All other indices declined by 0.34 per cent to 1.86 per cent. The India VIX is up by 7.11 per cent to 15.22. The market breadth is negative as 1,900 declines and 843 advances. About 149 stocks hit a new 52-week high and 94 stocks traded in the upper circuit. Premier Energies, Indigo Paints, SBI, and Reliance are the top trading counters on Friday in terms of value.

NSE Nifty has formed the most bearish candle on weekly and daily timeframes. The index traded in the 532.35 points range in the last five sessions and formed an open high and closed almost candle. It also formed a bearish engulfing candle on a weekly chart. As we cautioned earlier, the index is coming out of overstretched condition. During the week, the index registered all five days and reversed last week’s gaining streak. It registered a distribution day as the decline is with more volumes than the previous day. Currently, the Nifty holds three distribution days. The 20DMA acted as support for the day. It also took support at the 38.2 per cent retracement level of the prior rally. The distance from the 50DMA is narrowed to just 1.09 per cent, which is at 24,591 points.

In any case, if the index declines below the 50DMA and adds distribution days, expect a more severe correction. For now, the 24821-591 is the support zone. The daily MACD has given a fresh, bearish signal. Weekly MACD is also about to give a bearish signal.

The RSI declined to 51.9, with a negative divergence. The weekly RSI has also developed a bearish divergence. Now, it is clear that the market is in the mood to come out of extreme zones. Watch the behaviour around the zone mentioned above. Avoid fresh long positions in the indices. Stock-specific activity will continue.

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