Stay out of long positions as index shows weakness

After registering a failed breakout on Thursday, the equities declined sharply on the weekend. All the sectoral indices were down on Friday, with intense selling pressure. The NSE Nifty is down by 120.90 points, or 0.62 per cent, and closed at 19,265.80 points. The PSU Bank index is the top loser with 1.51 per cent. The Realty, Metal, Pharma, and FMCG indices were down by over one per cent. All other indices declined by 0.29 per cent to 0.94 per cent. The India VIX is up by 3.27 per cent. The broader market breadth is negative. About 90 stocks hit a new 52-week high, and 49 stocks traded in the upper circuit. Jio Financial Services, Reliance, and HDFC Bank were the top trading counters on Friday in terms of value.

The Nifty registered another distribution day, as it declined by 0.62 per cent, with its highest volume after 31st May. The index opened with an 89-point gap-down and closed below the open. The index clearly showed the inherent weakness as it closed below 19,250 points and formed a lower low candle. After taking support for eight days, the frontline index closed 0.56 per cent below the 50DMA. The Nifty has formed lower lows and lower highs, and closing below the 50DMA with 6 six distribution days means the market status has changed to a confirmed downtrend. The intraday trading range was 109.85 points less than the previous day. For the last two weeks, the index has held a 23.6 per cent retracement level (19,245) of the prior uptrend.

On a weekly basis, Nifty registered a fifth straight decline and formed a shooting star candle, which is bearish. It closed below the 10-week average for the second consecutive day. The weekly MACD is about to give the bearish signal. The weekly RSI declined to near the neutral zone. The daily RSI closed below the prior and very near to the bearish zone. The MACD line further declined below the zero line, and the histogram shows an increased bearish momentum. The Elder’s impulse system has formed a bearish bar again. For now, only a close above the 50DMA 19,374 points will be positive for the short term. Stay out of long positions in the indices.

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