MACD Shows Easing Bullish Momentum

The equities fell as the broader market experienced selling pressure and profit booking in the heavyweight stocks. NSE Nifty declined by 81.55 points or 0.33 per cent and closed at 24,379.60 points. Only Nifty Auto closed positively by 0.17 per cent. The PSU Bank index is the top loser with 4.84 per cent, followed by Realty by 3.58 per cent. The Microcap, and Smallcap indices are down by 2.62 per cent and 2.50 per cent. The Energy, Midcap, and PSE indices declined by over two per cent. All other indices closed with 0.1 per cent to 1.5 per cent. The India VIX is up by 3.59 per cent to 18.99. The market breadth is negative as 2331 declines and 545 advances. About 56 stocks hit a new 52-week low, and 122 stocks traded in the lower circuit. Reliance, Coforge, M&M, HDFC Bank, and Bharti Airtel were the top trading counters, in terms of value. The Nifty has formed a bearish engulfing candle on a broad-based selling pressure. It formed a second consecutive lower high bar and closed below the prior day’s low. But it is still within last Friday’s range.

This inside price action has to end for a directional move. The Nifty is not successful in closing above 24,400 decisively. The volumes were declining for the last two days. The current price shows indecision to move higher. However, it is yet to form a lower low. As it closed below the prior day, we consider this an initial signal for a reversal. If the index closes below Friday’s low, 24238 will confirm the reversal. The RSI formed a swing high, and the negative divergence is still valid. The MACD histogram shows a further decline in the bullish momentum. In any case, if the Nifty closes negatively on Wednesday, the bearish engulfing candle gets the confirmation for a reversal. For an upside move, the index must close above the 24,589-526 zone of resistance. The 61.8 per cent retracement level is at 24,545 points. As long as the index trades below this zone, it is advised to stay cautious. On a 0.35 per cent decline day, the volumes were higher than the previous day, and the Nifty registered a distribution day. On the downside, 24,268-238 zone is crucial support. Only below this zone, fresh shorts will open. Stay cautious and avoid fresh longs.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)