Time To Avoid Aggressively Building Portfolios Now

Except for 200DMA, Nifty-50 declined below all key moving averages. It is just 0.50% above the 200DMA support. Importantly, the MACD has given a fresh bearish signal, and the RSI struggles to close above the 40 zone

The outcome of the Federal Reserve meeting did damage to the world equity market. The do-mestic benchmark indices tumbled to a four-week low. NSE Nifty opened with over 321 points gap down, sustained the gap area, and closed below the psychological 24,000 level. Though the index has traded within the first hour’s range, the overall price structure has been damaged. It tested the previous inverted H&S pattern’s right shoulder’s low. The index has almost tested the 200DMA, and it declined 1.65 per cent below the 50DMA. Except for 200DMA, it declined below all key moving averages. It is just 0.50 per cent above the 200DMA support. Importantly, the MACD has given a fresh bearish signal, and the RSI struggles to close above the 40 zone.

The index tested the 61.8 per cent retracement level of the prior upswing. We expected this sce-nario a day before. In any case, if the index closes below 23,872 points, the index will resume the downtrend. The 200EMA of 23,692 is the nearest and strongest support. The 50-week mov-ing average, which is a long-term average, acted as support at the recent low of 23,263 points. Now, it rose to 23,538. To resume the upside move, the index must fill today’s gap first and at least close above the 50DMA. The index also added a second consecutive distribution day to-day. For the last two weeks, the index has formed lower highs, which is an indication that the counter-trend rally has ended at 24,857 points.

The index traded in the first hour’s range; the 23,870-24,005 levels will act as crucial support and resistance. If the 23,870 support breaks, it will test the 23,690-600 zone of support. If the index fails to bounce from this level, expect a new low below 23,263 in the next 3-4 weeks time. The large-cap stocks underperformed in the counter-trend rally. Even today, the Mid and Small-cap indices outperformed the benchmark index. The Microcap 250 index closed almost flat when the benchmark was down by over one per cent. Focus on those stocks with higher relative strength and registering the breakouts. Avoid building aggressive portfolios now.

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