The Indian market finally showed signs of weakness by closing below two days low. The benchmark indices closed deeply in negative territory. The leading BFSI sectoral indices too fell sharply. The Nifty ended with 166.55 points loss at 12,771.70. The Banknifty fell by 2.85 per cent, and the Financial services index dropped by 2.29 per cent. FMCG, Energy and media indices inched up higher.
The overall market breadth is negative as 1011 shares closed with losses. As many as 37 out of 50 Nifty stocks declined in today's market.
The Nifty tested the Muhurat trading lows and closed at three-day low. It formed a bearish shooting star candle. The BFSI stocks fell sharply with the profit booking at higher levels. The negative divergence on a 75 minutes chart had shown its impact and confirmed the weakness. As I mentioned yesterday, the Nifty met its swing target, it tries to consolidate for some time before taking a decisive trend.
After opening with a gap down, it recovered for the first three hours and traded in green territory for a while. As soon as it moved above the new high, it faced aggressive selling pressure. It fell over 200 points from the day's high. The waning momentum indicated that the upside is limited. A move below 12,735 will be a further weaker sign.
The next level of support placed at 12,626, which is a 23.6 per cent retracement level of current swing. Only below this level, we will get clarity on the next leg of the down move. The earlier down move was limited to 38.2 per cent.
In any case, the history repeats this time, and the Nifty may retrace up to 12,417. As it closed below the two-bar low, the initial weakness is significant. On the hourly chart, the MA ribbon has turned down indicating the short term weakness in the market. The Nifty still trading above the upper Bollinger band on a weekly chart showing the overbought condition in the market.
It indicates that the fall below 12,640 is a higher probability. India VIX rose by 2.35 per cent shows the increased volatility.
As we cautioned, it is the time to stay away from the market and wait for a clear directional signal. It is better to book profits at the current juncture. Avoid buying on a dip strategy.
The author T.Brahmachary is a financial journalist, technical analyst, trainer, family fund manager.
