Nifty Forms Extremely Bearish Candle

The equities on Thursday collapsed due to renewed selling pressure. NSE Nifty declined by 221.45 points or 0.89 per cent and closed at 24,749.85 points. Only the Nifty IT index gained by 1.19 per cent. The Realty and Auto indices are down by 3.76 per cent and 3.54 per cent. The Consumption, Media, and Consumer Durable indices are down by over two per cent. Many other indices declined by over one per cent. The India VIX is up by 2.57 per cent to 13.39. The market breadth is extremely negative as 2,050 declines, and 722 advances. About 76 stocks hit a new 52-week high, and 95 stocks traded in the upper circuit. Bajaj Auto, Reliance, Mphasis, and Infosys were the top trading counters today in terms of value.

As we expected, the counter-trend consolidation has ended. The Nifty broke the bearish pennant pattern on Wednesday. Today, it has broken down the head and shoulders pattern. It also broke the rising channel decisively. These patterns are extremely bearish, and they have long-term implications. The index has formed an extremely bearish candle today, as the open is almost high and closed at the day’s low. It also registered a distribution day. Now, the distribution day count has increased to four. The Nifty is near to the 7th October low of 24,694. Below this, the nearest support is at 24,488, which is 100DMA. The Nifty also closed below the 61.8 per cent retracement level of the prior upswing. Now, the index is 1.42 per cent below the 50DMA. The MACD is below the zero line, and the histogram shows an increase in the bearish momentum.

The RSI declined into the bearish zone after 23rd October 2023. The index closed at its lowest level after 20th August. It declined by 400 points in the last three days. In any case, the index closes below 24,694, which will test the 24,488 very fast. There is a possibility of a retest of the breakdown point of 24,742 next week. On the upside, the chances of crossing the 50DMA of 25,093 are very limited. Only above this level with higher volume support may result in buying interest. But to negate the pattern implications, the index must close above the 25,234. The distribution day count must be reduced to one or two. For now, it is clear that the counter-trend consolidation has ended and resumed the downside move. The index may test 23,893 and 23,210 sooner or later. These are the pattern breakdown targets. The earnings season is not up to the expectations as of date. Stay away from the long positions.

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