Stay sidelines till trend confirmation emerges

The stocks declined on a profit booking, and the benchmark indices closed negatively. NSE Nifty declined by 65.75 points or 0.36 per cent and settled at 18,343.90. The PSU Bank index was the top gainer with 0.79 per cent, and the Infra index was up by 0.13 per cent. The Nifty Auto declined by 1.36 per cent. Nifty IT and Energy is down by 0.90 per cent and 0.66 per cent. The other sectoral indices declined by less than 0.50 per cent. The market breadth is negative as 1,217 declines and 678 advances. About 48 stocks hit a new 52-week high, and another 48 stocks hit a 52-week low, and 77 stocks traded in the lower circuit.

The Nifty has formed a lower top and lower bottom bar, with a sharp decline in the last 30 minutes. Before that, the volatility is not at the level of the expiry day. In fact, it was a dull trading day. Most of the sectoral indices traded in the negative zone. There is a lack of leaders to drive the direction. After opening with a big gap last Friday, the Nifty traded just in 182 points range in the last five trading sessions. It made a new 52-week high during the week but traded in wavering moves with a lack of momentum. The Nifty has made a first lower-high candle in the last five days. It opened with over 50 points gap down on Thursday and closed just below the previous day's low. This is the first support and it is broken.

For the day, it holds the 5EMA support. The next level of support is at 8EMA at 18,275. Unless these levels are broken down, do not expect short-term weakness in the market. On the hourly chart, no confirmed weakness is visible. The index is trading above the moving average ribbon. Interestingly, the MA ribbon support is also at 18,298. There are negative divergences developed in major indices, but need confirmation for bearish implications. For the last two days, the index breadth and market breadth have been negative. Currently, the index is 3.87 per cent above the 50DMA and 1.87 per cent above the 20DMA. As the distance shrinks from the moving averages, the mean reversion is in progress. A decline below the 20DMA (18,009) will confirm the bearish bias. The Elder impulse system is forming neutral bars for the last four days. It is better to avoid the aggressive long position, as the index is trading sideways, indecisively, and closed below the prior day's low. It is better to stay on the sidelines, till the trend is confirmed.

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