Unwinding of positions likely

The benchmark indices slipped further with all round profit booking. NSE Nifty closed at 17530.30 with 144.65 points or 0.82 per cent decline. Only Bank Nifty closed with decent gains. As it recovered over 500 points from the day's low, the Nifty also recovered 90 points from the low. The Metal and Realty indices declined by 2.7 per cent each. The Infra, Media, IT indices down by over 1.5 per cent. The other sector indices also slipped over half a per cent. The VIX closed the flat at 18.15. The market breadth is negative as 1550 declines and 545 advances. About 69 stocks hit a new 52-week high, and 92 stocks traded in the upper circuit.

The Nifty has broken the last three days' base support. It retraced more than 23.6 per cent retracement level of a prior upswing, which is the first sign of weakness. A short-covering bounce in the late afternoon failed to sustain the positive momentum. The intraday high was used for a profit booking. The Nifty took support at near 20DMA. Now, it is decisively closed below the very short-term averages, 5 and 8EMAs. The decline from the 18114 level, has damaged the bullish structure and given a fresh signal for the bearish move. The MACD is about to give a sell signal. RSI is at a prior swing low. The -DMI is moving higher and the +DMI is declining. In any case, the Nifty closes below the 20DMA, and the directional movement indicator will give a bearish signal. Importantly, as the long weekend is in place, the market may witness the unwinding of positions tomorrow. Moreover, the weekly expiry is in place, and the volatility will rule the price action.

It closed below the previous week's long-legged Doji candle on a weekly chart. If the Nifty closes below 17600 on Wednesday, it will get a confirmation of a downswing. A weekly close below the 17430, means the Nifty is going to test 17000 and then 16600 levels sooner or later. For now, avoid long positions as long as it traded below the prior day's high.

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