With downtrend on, avoid new purchases

The Covid fears are back to the equity markets worldwide, as the new variant looks to be dangerous. Many countries are already initiated the travel restrictions and expected to be more and more coming soon. With Global markets meltdown, the domestic markets have also nosedived after a gap down opening. It closed at 17,026.45 with a 509.80 points decline. Barring Pharma, all the sectoral indices are down over three per cent. The Realty and Metal indices were the top losers with 6.26 per cent and 5.34 per cent. The broader indices Nifty Midcap-100 declined by 3.25 per cent, and Smallcap100 are down by 2.89 per cent. Auto and PSU bank indices were down by 4.34 per cent and 4.21 per cent, respectively. The volatility index VIX is up by 24.85 per cent and closed above the 20 levels after a long time. The market breadth is extremely negative as 1,617 declines and 403 advances have been recorded. About 86 stocks hit a new 52 week high, and 153 stocks traded in the upper circuit. The selling pressure from the FIIs is intense as they have already sold over Rs 25,000 crore.

The Nifty registered the biggest fall after April 12. It closed at the lowest level of the day. On every time frame, it formed serious bearish candles. On a monthly chart, it formed a bearish engulfing and confirmed the previous month's shooting star. It also closed below the September low. The Nifty has formed one of the most bearish candles on the weekly chart, where open is the high and close is low. It also violated the 100-day moving average. As we cautioned earlier, the head and shoulders target is almost met. Even after this big, the Nifty corrected only 8.7 per cent or 1618 points from the recent top. The index decisively closes below the downward channel support. Now, it retraced 50 per cent of the rally from the 28th July low. In any case, it fails to move above 17,600, and the next support is at 16, 694. It is near the oversold zone. The 50DMA began to turn down. The index closed much below the lower Bollinger band, and there is a possibility of bouncing back into the bands. Any recovery in global markets may lead to a bounce towards 17,250. As the market is in a clear intermediate downtrend, avoid new purchases now. Trim down the portfolio in every bounce.

(The author is financial journalist, technical analyst, family fund manager)