Stay off high leveraged positions

The equities collapsed for another day with a gap down. NSE Nifty closed at 19,742.35 points with a decline of 159.05 points or 0.80 per cent. Only Nifty Media index closed flat to positive bias. The PSU Bank index is worst hit with 2.28 per cent. Bank Nifty, Auto, CPSE, and Nifty Private Banks indices declined over 1.5 per cent. Most of the indices recorded a decline of 0.55 per cent to 1.5 per cent. The market breadth is extremely negative. About 58 stocks hit a fresh 52-week high, and 59 stocks traded in the upper circuit. HDFC Bank, Indian Overseas Bank, and Reliance were the top trading counters today in terms of value.

The Nifty declined sharply by 482 points or 2.39 per cent in just three days. We cautioned about this decline, as the market was impulsively overextended. The index is below the previous low and also below the prior breakout level. It retraced 50 per cent of the prior rally in just three days. The index took support at a 50 per cent retracement level (19723), of the prior up trend for the day. The index is just 0.19 per cent above the 20DMA (19686) and 0.51 per cent above the 50DMA (19620). These immediate supports are crucial for the market. The index is also closed below the moving average ribbon.

The RSI is back to the 50 zone from an extreme level. The MACD is declining from an overbought zone. If the Nifty declines below the 50DMA, MACD will give a fresh, bearish signal. Historically, the RSI takes support at 40-45 zone. Let’s hope the index may bounce from the 19,600 zone if the fall continues for another two days. The Elder’s impulse system has formed a strong bearish bar after August 31. Expect a volatile move on the weekend. If today’s today’s low 19,709 holds, we may see a small bounce.

But the bounce must close above Thursday’s high of 19,849 to negate the further bearishness. We may see more selling pressure on bounces, which is the sell-on-rise kind of situation. For now, the technical structure has changed in the last three days. It registered another distribution day. If the index declines below the 50DMA with an added distribution day, the market structure will change to a downtrend. Stay away from the highly leveraged positions.

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