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Indicators signal slowing momentum

Nifty formed a Bearish engulfing candle with higher volume in the last 3 days; Stay cautious and avoid the long positions

Indicators signal slowing momentum
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For now, Wednesday’s high of 24,461 will act as a strong resistance. Only above this level, the index will resume the rally. In any case, if It closes below 24,245 points, it can test the 20DMA of 23,888pts

Negative Market Breadth :

  • 1,807 declines
  • 927 advances
  • India VIX is up by 1.07%
  • 123 stocks in lower circuit
  • 145 stocks hit a new 52-wk high
  • RSI declined sharply to below 79
  • MACD about to give a bearish signal

The benchmark indices gave a clear weak signal as profit booking was the order of the day. NSE Nifty declined by 108.75 points, or 0.45 per cent, to 24,324.45. Auto index was the top loser with 2.02 per cent. The PSU bank and IT indices are down by 1.40 per cent and 1.03 per cent, respectively. Bank Nifty and SmallCap indices are down by 0.73 per cent and 0.88 per cent. CPSE, and PSE indices up by 0.50 per cent, and 0.47 per cent were the top gainers. The India VIX is up by 1.07 per cent to 14.43. The market breadth is negative as 1,807 declines and 927 advances. About 145 stocks hit a new 52-week high, and 123 stocks traded in the lower circuit. RVNL, M&M, HDFC Bank, and IRFC were the top trading counters on Wednesday in terms of value.

Finally, the Nifty has shown clearly weaker signals. It formed a Bearish engulfing candle with higher volume in the last three days. The Index also breached last Friday’s low on an intraday basis. It closed below the prior day’s low, which is a clear weak signal. As soon as the market opened, the index began to decline sharply.

The first two hours witnessed intense selling pressure with high volume. It declined below the 8EMA support in the first hour, but was able to close above this crucial support. It also recovered to 61.8 per cent of the first two-hour decline in the afternoon session. The Nifty opened with a record-breaking level of a new lifetime high at 24,461.05, for the second successive session.

The weaker market breadth is an indication of exhaustion. As mentioned earlier, a close below the prior day is a weaker signal. As the volume is higher than the previous day, and the decline is over 0.25 per cent, the Nifty has recorded a distribution day. The RSI declined sharply to below the 79 zone. The MACD is about to give a bearish signal. The Stochastic RSI has given a fresh, bearish signal in the extreme zone.

Just before the earnings season, the Nifty took a breather with a nervous behaviour. For now, Wednesday’s high of 24461 will act as a strong resistance. Only above this level, the index will resume the rally. In any case, if It closes below 24245, it can test the 20DMA of 23888. Now, stay cautious and avoid the long positions. Any negative earnings surprises will dampen the sentiments.

(The author is a Sebi-registered Research Analyst, Chief Mentor, Indus School of Technical Analysis and Financial Journalist)

T Brahmachary
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