Refrain from holding long positions for now

The equities collapsed for the second day and closed at the week’s lowest level. NSE Nifty declined by 114.80 points or 0.59 per cent and closed at 19428.30. However, the PSU Bank index is the only one to gain, up by 1.25 per cent. The Nifty Media and Pharma indices were the top losers, with 1.83 per cent and 1.45 per cent, respectively. The BankNifty and FinNifty were down by 0.77 per cent and 0.87 per cent, respectively. All other sector indices closed with modest declines. The India VIX is up by 1.07 per cent. The market breadth is negative as the advance-decline ratio is at 0.65. As many as 118 stocks hit a new 52-week high, and 78 stocks traded in the upper circuit. Reliance, HDFC Bank, and Adani Enterprises were the top trading counters on Friday in terms of value.

Nifty closed decisively below the rising channel. On a weekly chart, it formed an inside bar. For the third consecutive week, Nifty closed negatively. It registered a sharpest decline on Friday, as it formed the most bearish candle, where the open is high and the close is low. On the weekly chart, it closed at the lowest level. Now the index is trading just less than percentage points above the 50DMA. The 20DMA entered into a downtrend. Importantly, it closed below the anchored VWAP support. The index is currently holding five distribution days. If it closes below the 50DMA of 19,240 points, the market status will change as a confirmed downtrend. The prior low, or last week’s low, is at 19,300 points, which is immediate support.

For next week, the 19240-300 zone is crucial. As the index has formed three consecutive bearish candles on a weekly chart, we may see some small bounce from the support zone. Currently, the market structure turned weak, as it is forming lower highs and lower lows. The breadth is not positive, and on Friday all the sectoral indices ended in a negative zone. The open interest suggests shorts were built into the system. In the derivative segment, 111 stocks were seen as short built-up and only 39 stocks witnessed long built-up. This data shows the market’s weak market internals. It is not the time to hold the long positions. Most of the index stocks are looking weak too. Take out the profits from the table.

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