Stay cautious as bearish trend likely to continue

The equity benchmarks ended a three-week winning streak. The Nifty closed positively today, but it ended in red week on week basis. On the weekend, the index gained by 73.45 points or 0.41 per cent and settled at 18203.40. On a weekly basis, it declined by 111.40 points or 0.61 per cent. The Nifty IT is the top gainer with 1.47 per cent. The Nifty Realty and Banknifty, up by 0.87 per cent and 0.50 per cent, are the other top gainers. The Nifty Pharma index is down by 0.96 per cent. The FMCG is closed with flat to negative bias. All other indices are up by less than half a per cent. The India VIX is down by 3.85 per cent to 12.30. The market breadth is negative as the advance-decline ratio is at 0.86. About 61 stocks hit a new 52-week high, and 50 stocks traded in the upper circuit.

The Nifty has formed a dark cloud cover candle on a weekly chart, which indicates the exhaustion of a trend. The weekly RSI is still in the neutral zone and declining. On a daily chart, the Nifty took support at 20DMA and bounced as we expected earlier. It formed a hammer candle at a lower volume. It formed a lower low and lower high candle. A close above the prior bar high will be positive, and it can test the previous high. The Daily MACD is still bearish, and the histogram shows an increased bearish momentum.

On an hourly chart, the index has formed two lower highs and two lower lows, which is a downtrend character. The India VIX is again at a historical low. Today, it declined by 3.85 per cent. This prolonged low, low VIX period is not good for the trending market. Friday's recovery is mainly because of IT stocks rally and the recovery in the banking and financial stocks. Adani Enterprises and Adani Ports also contributed to gains in the afternoon session. As the weekend was in place, traders covered short positions in many stocks to protect their profits. For a longer time frame, the Nifty has to close above the bearish engulfing candle for an uptrend to continue. The mean reversion is almost done. If the index declines below 20DMA (18107) on a closing basis, the downtrend will continue. Stay cautious for now on both sides.

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