Nifty indicates clear weak signal

The initial positive strength failed to gain momentum in the afternoon session and declined to the day's lowest level. The bulls are unsuccessful to tighten the grip on the market. The Nifty closed at 17415.05 with an 88.30 points loss. The Nifty IT and Auto indices were the top losers with 1.52 per cent and 1.28 per cent, respectively. The FMCG and Pharma are down by 0.99 per cent and 0.61 per cent. Though the Bank nifty gained by 0.45 per cent, it actually declined by 450 per cent from the day's high. The Media index up by two per cent. The market breadth is positive as 1080 advances and 905 declines. About 87 stocks hit 52 week's high, and 222 stocks traded in the upper circuit.

As we expected, the Nifty bounced to 17600 and faced firm resistance. It closed near the day's low. After opening with 47 points gap up, it gained to the momentum and advanced to the 17600 levels, where it faced resistance. After most of the shorts covered the sharp decline in the late session, the Nifty resumed its downward move. It formed a dark cloud cover candle, which has bearish implications. The five periods moving average acted as a resistance today.

By forming a most bearish candle today, the Nifty has given a clear weak signal. It met yesterday's bearish flag pattern target, and the head and shoulder pattern target is due now. As long as, the Nifty sustains below 17510, the next support is at 17171. Below this, it can also test the 16832, which is almost the Head And Shoulders target. The benchmark index has already made lower tops and lower bottoms have given a trend reversal signal.

Today's high of 17600 and prior day low of 17216 are the key support and resistance zones for the near term. It may move in this range on the monthly expiry day. The low Implied Volatility (IV) and the low VIX, the option premiums, eroded in the derivative segment. The rollovers are below the monthly and three-month averages. The intense selling pressure from the institutions and the lack of buying support from all quarters result in a gap in demand supply. It will be extremely difficult to trade on expiry day.

(The author is financial journalist, technical analyst, family fund manager)