RSI Back Into Neutral Zone

After a long weekend, the fresh week began with a sharp decline. The weakness in the global market influenced domestic equities. NSE Nifty declined by points 353.6 points or 1.50 per cent and closed at 23,165.70 points. The Nifty Media, Microcap-250 and Oil and Gas closed with moderate gains. The Nifty Realty is the top loser with 3.11 per cent. the Consumer Durables. IT, and the FinNifty declined by 2 - 2.5 per cent. The Services, Pharma, and Healthcare indices declined by over 1.50 per cent. All other indices declined 0.14 per cent to 1.5 per cent. The India VIX has sharply increased by 8.37 per cent to 13.78. Interestingly, the broader market breadth is positive as 1,955 advances and 960 declines. About 113 stocks hit a new 52-week low, and 275 stocks traded in the upper circuit. HAL, BSE, HDFC Bank, Infosys, and HBL Engineering were the top trading counters, in terms of value.

The Nifty closed below the 23,350 points, the gap area of last Monday. It opened with a gap down and ended on a significantly lower level. The last week’s Shooting Doji candle, which is also an Evening Star candle, gets the confirmation for its reversal implications. The volumes were higher than the previous day and registered a distribution day. The index also closed below the 8EMA. It tested the 38.2 per cent retracement level. The RSI has returned to the neutral zone after extreme overbought conditions. After opening with a negative gap, the index bounced sharply by 225 points, but did not sustain its higher levels. It declined by 428.75 points from the day’s high. Now, the index is just 0.77 per cent above the 50DMA, which is a crucial support. In any case, it closes below 23,000 on this weekly closing, which may cause a sharp decline. Below 23,000 level, the next support is at 22,917, which is 50 per cent retracement level of the prior upswing. The index must bounce from this level to resume the upside move. If it fails, the correction will continue. As the Trump Administration is planning to impose the tariff from tomorrow, we need to watch the reaction across the markets. Any adverse impact will result in a sharp decline in the markets.

A close above 23,420 points, will be positive and can resume the upside. For now, it is better to avoid highly leveraged positions, as the volatility will increase.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)