Stock-specific trading likely amid volatility

A close below 22,270-22,142 zone of support will provide the bearish confirmations. If Nifty closes below 22,100, expect correction towards the recent low of 21,710 points. A weekly close below this will result in a confirmed downtrend. On the upside, the index must close above 22,775 to resume the uptrend

In a truncated four-day week, the index erased the gains and closed at week’s low. NSE Nifty gained just 5.7 points. BSE Sensex closed at the previous week’s level. The Smallcap-100 index gained by 0.9 per cent and the Midcap-100 was higher by just 0.1 per cent. On the sectoral front, the Nifty Metal index is up by 2.9 per cent. The Realty was up by 1.6 per cent, and Auto gained by 1.1 per cent. The Pharma index is down by 1.95 per cent, and FMCG declined by 0.42 per cent. The India VIX is up by 1.72 per cent to 11.53. The FIIs sold Rs10,362 crore in this month. On Friday, they sold massively by Rs8,027 crore. The DIIs bought Rs12,232.63 crore.

Global equities tumbled as war looms in West Asia. Soaring Gold prices indicate probable war. The Global benchmark indices closed below the 23.6 per cent retracement levels of the prior uptrend. The Dow and S&P closed below the 10-week average. Most importantly, the CBOE VIX rose by 16.10 per cent on Friday, indicating an unknown storm is coming.

The Domestic benchmark indices closed flat on a week-on-week basis, forming a bearish pattern that warrants attention. The Nifty closed at a week’s low and formed a Shooting Star candle, indicating a potential reversal in the market’s upward trend. Previously, all the swing highs formed a long upper shadow candle, followed by a significant decline. On Friday, over one per cent of the decline was with high volume, and the index registered a distribution day, further confirming the bearish pattern. Currently, the Nifty is holding three distribution days, a clear indication of the market’s current state. It closed below the 23.6 per cent retracement level of the prior upswing and the 8EMA, breaking the short-term supports. This is the first sign of topping formations, as the index closed at the week’s low. Since October 2023, the index has not closed below the prior week’s low and below the 10-week average. Currently, it is 1.26 per cent above the 10-week average and 1.70 per cent above the 50DMA.

Before this, the 20DMA (22,270) was critical support, further emphasizing the market’s current state.

Negative divergences remain in all major indicators. The RSI tried to negate the bearish divergence on the daily time frame but failed, as it declined below 60 again. The daily MACD line made lower highs, but it still holds a negative divergence. As mentioned earlier, relative strength is poor and declining further compared to the broader market. Even the ADX (19.93) declined after a brief upward move, indicating that trend strength is easing.

The Nifty reacted to the rising trendline resistance by connecting the prior highs of 16th January and 7th March. It tested the resistance line twice and formed the all-time highs for two consecutive days at the resistance line. Finally, it closed below the 7th March high, which can be considered a failed breakout of the 18-day Cup pattern. Since 16th January, the index has lost its rhythm in price action. The zig-zag moves resulted in several pattern failures.

For now, the strategy must be protecting the capital. A close below the 22,270-22,142 zone of support will provide the bearish confirmations. The 50 and 61.8 per cent retracement levels are also in this area. In any case, the Nifty closes below 22,100; expect the correction towards the recent low of 21,710 points. A weekly close below this will result in a confirmed downtrend. On the upside, the index must close above 22,775 to resume the uptrend. As the earnings season begins, stock-specific activity will increase. The volatility will also spurt. It is not the time to be complacent. Caution is advised in these uncertain times.

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