Avoid fresh long positions

The equity indices collapsed on the derivatives expiry day, with all-round selling pressure. NSE Nifty declined by 118.40 points, or 0.60 per cent, and settled at 19,659.90 points. The Nifty Pharma index is the top gainer with 3.05 per cent, followed by the Realty index with a 2.12 per cent gain. Nifty Mid-cap, PSU Bank indices advanced by 0.27 per cent to 0.50 per cent. The Nifty Auto and Private Bank indices were the top losers with over one per cent. All other sectoral indices closed with 0.10 per cent to 0.90 per cent declines. The India VIX closed at 10.51, up by 0.53 per cent. The broader market breadth is positive as the advance-decline ratio is at 1.09. About 167 stocks hit a new 52-week high, and 61 stocks traded in the upper circuit. HDFC Bank, ICICI Bank, and Reliance were the top trading counters on Thursday in terms of value.

The Nifty formed a big bearish bar on an expiry day, with selling pressure in index heavyweights. It is one of the biggest bearish bars in recent history. It closed below the previous day’s low and 8EMA. It also tested the lowest level in the current week. Thursday’s bearish engulfing candle at the confluence of all-time high needs confirmation for its negative implications. A decline of 263 points from the day’s high has erased all the positive bias. A 90-point rise in the last 30 minutes because of expiry adjustments did not result in a bullish bias. The Nifty is still in the previous week’s range and may form an inside bar on the weekend. The previous week’s low of 19,562 points is still strong support. The 20DMA is now at 19,556 points, which is also similar to the previous week’s low. As discussed earlier, the mean reversion is in progress. Now, the question is what would be the behaviour once it tested the 20DMA? If the Nifty closes below 19,562 points, we may see further downside towards 19,245 points, which is a 23.6 per cent retracement level of the current uptrend. The RSI is back to near 60 levels. An increased MACD histogram shows the strengthened bearish momentum. The index registered a third distribution day on Thursday, as the volumes were higher on a 0.60 per cent decline. The total distribution day count is now at three. Any increase in the distribution days, with support breaches, the market status will change to an uptrend under pressure. The next two days will be crucial for the trend to continue or reverse. Stay cautious and keep booking profits. It is not advised to take fresh long positions in the index.

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