Time to stay on sidelines

The Nifty broke key supports and approaching the prior low of 21,777pts. The 22,000 level may act as psychological support. The index declined by 3.78% from the all-time high. For an upside move, the index must close above Thursday’s high of 22307, or 50DMA (22300)

The equities on Dalal Street registered sharpest declines on Thursday, with broader market selling pressure. NSE Nifty is down by 345 points or 1.55 per cent. Only the Nifty Auto index closed positively by 0.78 per cent. The PSE and CPSE indices were down by 3.41 per cent, and 3.28 per cent were the top losers. The Energy Media and Infra indices declined by over 2.5 per cent. All other indices declined by 0.39 per cent to 2.5 per cent. The India VIX is up by 6.56 per cent to 18.20. The market breadth is extremely negative as 2,098 declines and 480 advances. About 73 stocks hit a new 52-week high, and 126 stocks traded in the lower circuit. SBI, L&T, HDFC Bank, and Tata Motors were the top trading counters on Thursday, in terms of value.

The equity benchmark index nosedived by over 300 points on a weekly derivatives expiry day. It declined below the supports. Now, it is 1.42 per cent below the 50DMA and closed below the 100DMA, too. The Nifty registered a distribution day, as the volume was higher than the previous day, on a 1.46 per cent decline day. The index is approaching the channel support, which is just a few points away. Importantly, the index continued the declining streak for the fifth day, which is the longest losing streak since December. The RSI has shifted its range into the bearish zone and closed below the prior low. It is the first time after November 1, 2023, that the daily RSI declined below the 40 zone. In many ways, this leading indicator has given the strongest bearish signal.

It also got the confirmation for its bearish divergence implications. The MACD line declined below the zero line. The weekly MACD histogram shows a higher increase in bearish momentum. As mentioned earlier, the current price pattern is like a double-top. It closed its lowest level after 18th April. Now, it is clearly evident that the Nifty broke the key supports and approaching the prior low of 21,777 points.

The 22,000 may act as psychological support. The index declined by 3.78 per cent from the all-time high. The index declined 4.46 per cent in the current rising channel’s first downside swing. There is a higher probability of declining at least 5 per cent in the current fall, about 21700, which is a little lower side of the prior swing low of 21,777 points. For an upside move, the index must close above Thursday’s high of 22,307pts or 50DMA (22,300pts). As the profit booking is severe in many index stocks and, it is better to stay in more cash and on the sidelines.

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