Banks, IT, pharma scrips pull Nifty down

The stock market witnessed an aggressive profit booking, and broader market sell-off caused a vertical fall. Soon after opening at a new lifetime high, the selling pressure continued till the end. The pullback efforts in the mid-session did not sustain. The Nifty sharply fell by 196.75 points or 1.51 per cent. The leading sectors, Banks, IT and Pharma also fell by 1.8 per cent on an average. The PSUs outperformed the broader market today as a majority of the public sector banks closed with decent gains. The Nifty CPSE and PSE indices advanced by 1.26 per cent and 0.37 per cent respectively. The market breadth is negative, with 1,196 declines and 652 advances. Today, 78 stocks made their new 52-week high at the opening bell.

The sudden across the board selling pressure in the market has given a serious caution for the bulls. A vertical fall after opening at a new lifetime high and closed below the important short term supports. Fell almost 300 points from the days' high and closing below the prior low and 8EMA is a warning sign for the near term.

As we keep mentioning overbought condition, lack of momentum and the negative divergence showed the impact. The RSI fell below 65 levels, and the MACD histogram is almost near the zero line. The Nifty closing below the previous day's breakout levels can be categorised as the failed breakout. It also closed at day's low is also another weaker signal. Interestingly, since March low, every swing is made in a similar manner i.e, opening at higher and closing at a lower level. And every time it made a bearish engulfing pattern. This is an interesting observation.

Now, the next level of support placed at 12,765, which is 23.6 retracement level of current upswing. Below this level, the 38.2 per cent retracement level is 12,530. The probability consolidating between these levels is high. Only in case of falling below 12,530 will be a bearish sign for the market. But, a move above 13,055, will resume its uptrend. The indicator turned negative for now. As the November expiry is on the cards, it is better to avoid the long positions. As we suspected, the India VIX further increased by 9.83 per cent, which indicates the highest level of volatility. A day before the expiry the rollovers stood at 50.29 per cent. A follow through with higher volume selling, will confirm today's high as an intermediate top. It better be cautious on the long side.