Bullish bias confirmed, wait for decisive directional move

The equity indices failed to sustain the positive opening. The broader market witnessed intensified selling pressure at higher levels. The benchmark index, Nifty, closed at 16,584.30 with a 43.70 points decline. In fact, it declined over 220 points from the day's high. The Auto, Metal and Media indices declined over one per cent and led to the fall. Only Nifty IT was able to close with a 0.37 per cent gain. Bank nifty and FinNifty declined by 0.95 per cent and 0.71 per cent. The market breadth was negative as 1,337 declines and 731 advances were recorded. About 33 stocks hit a new 52-week low, and 97 stocks traded in the upper circuit. Reliance, Infosys and Ultratech Cement were the top trading counters on value terms.

The Nifty tumbled after opening with a big bang breakout of a bullish flag on a lower time frame or a range breakout on a daily chart. Soon after it opened, the profit booking renewed with a higher volume. The index failed to form a higher high candle. The sell-off was further intensified in the late afternoon session. It formed one of the biggest bearish candle in recent times. On the weekly chart, it has formed a long upper shadow candle, which was a strong bullish candle at the opening. The index also formed a dark cloud cover, kind of a pattern.

The index has registered multiple failures with the last day's price action. Apart from a failed bullish flag breakout, it also failed to sustain above the three-day range breakout. A weekly shooting star candle cautions the bulls on the weekend. Many positions hit as hit stop losses on both sides. The previous day's short position stop loss hit first and then long-short positions hit during the day. As stated last week, sudden and seductive moves are common in counter-trends. As the consolidation breakout has confirmed the bullish bias, it is better to wait for a decisive directional move. In the current conditions, position sizing and risk management are key in protecting capital.

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