Nifty forms a long upper shadow Doji
Huge correction ahead: Market completed the Stage-1 correction by declining more than 13%, expect the Category-2 correction of 25% from its lifetime high. The targets for the future down move are at around 14000, which may take another 5 to 6 mths to reach this target
Tuesday's rally was fizzled out with broad-based selling pressure. All the sector indices decline over two per cent. The benchmark index Nifty declined by 430.90 points or 2.65 per cent and settled at 15809.40. The IT and Metal indices dragged the market with 5.74 per cent and 4.08 per cent declines.
The other sector indices declined by over 3.5 per cent. The India VIX rose by 10.15 per cent. The broader market breadth is extremely negative as 1679 declines and 414 advances. About 63 stocks hit a new 52 week high, and 169 stocks traded in the lower circuit. Infosys, ITC and Reliance were the top trading counters on Thursday.
The sharpest decline in global markets dented the domestic market's sentiments further. In the last four trading sessions, the Nifty gained just 23.5 points. But, the volatility is very high. After forming three parallel bottoms last week, it bounced sharply on Tuesday. The Nifty has moved in a 660 points range in the last six trading sessions.
All the gains made on 17th May have eroded in the same faster manner. It tested the last week's low but is yet to form a major swing low. As the index has formed a long upper shadow, Doji candle, the market direction is clearly on the downside. The sharp surging moves in bear market conditions are common, and every such bounce will give fresh selling opportunities.
The southern Doji on May 16 got a bullish confirmation with a big bang move. But, it failed to get the follow-through day. By closing below the Doji close today, all the positive bias was erased. The Nifty has witnessed one of the sharpest declines in the last six weeks, as it declined by 13.1 per cent. The previous downswing was of 14.6 per cent in seven weeks.
These downswings were sharpest after March 2020 fall. As the market is already completed the Stage-1 correction by declining more than 13 per cent, expect the Category-2 correction of 25 per cent from its lifetime high. The targets for the future down move are at around 14000 levels. It may take another five to six months to reach this target. On any timeframe, no positive divergences are visible.
After flattening yesterday, the RSI has declined sharply to near 30 zone. The bounce and pullbacks are common and technical in nature. Do not get trapped in those rushing moves. Stay in sideways for investment, and wait for good trades on the short side.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
