Nifty forms another lower high candle

Bearish Trend

• VIX down by 3.31%
• RSI declined below 68
• MACD declined below the prior low

The equities suffered a second consecutive selling pressure day and added a distribution day. NSE Nifty closed at 21,516.35 points with 148.45 points or 0.69 per cent decline. The IT sector stocks suffered the most as the Nasdaq was down over 1.6 per cent. The Nifty IT led the fall by losing another 2.52 per cent. The Metal index fell by 1.81 per cent. Nifty Realty is up by 1.23 per cent, followed by the PSU Bank index by 1.15 per cent. The Pharm and Oil and Gas indices also advanced by 0.61 per cent, and 0.55 per cent, respectively.

The India VIX is down by 3.31 per cent to 14.09. The market breadth is positive as 1,427 advances and 1,117 declines. About 204 stocks hit a new 52-week high, and 139 stocks traded in the upper circuit. Many of Adani group’s stocks were top trading counters today as the Supreme Court pronounced the judgement on the Hindenburg case.

The Nifty closed lower and below the 8EMA. It formed another lower high and lower candle. It also declined below the prior breakout level of 21,593 points. It formed a strong, bearish candle. Importantly, the index has added another distribution day, as it declined by 0.69 per cent with a higher volume than the previous day, which is, in fact, the highest in the last four days. Now, the total distribution day count is four. The Bollinger bands began to contract as we expected. During this mean reversion and contraction, the index will test the 20DMA initially. As we suspected earlier, the RSI declined below 68 and confirmed the bearish divergence implications.

Even the MACD line also declined below the prior low, and the signal line. The histogram shows a strong bearish momentum. If the Nifty trades below 21,593 points, there is the highest probability of testing the 20DMA of 21,329 points, which is strong and immediate support. The hourly moving average ribbon is in the downtrend, and the MACD is below the zero line, which is the bearish signal. On the upside, it must close above the 8EMA (21,517) first and 21,677 for a bullish bias. It is better to stay on with a bearish outlook and continue Wednesday’s high as a stop loss.

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