Market set for higher volatility, unusual downward move

The market nosedived again and erased all the previous gains. The Nifty declined by 276.30 per cent or 1.68 per cent and settled at 16,201.80. The banks and financial services stocks led the fall. The Banknifty and FinNifty are down by 1.71 per cent and 2.24 per cent, respectively. All the sectoral indices were on a decline on Friday. The Metal, Media, and Realty indices are down by over 1.2 per cent. The broader indices, Nifty Smallcap-100 declined by 1.10 per cent and the Midcap-100 index down by 0.83 per cent. The India VIX is up by 2.27 per cent. The market breadth is extremely negative as 1,395 declines and 670 advances were recorded. About 58 stocks hit a new 52-week low, and 79 stocks traded in the upper circuit. Reliance, Bajaj Finance and HDFC were the top trading counters on value terms.

The Nifty ended its counter-trend consolidation. It broke the bearish flag pattern by erasing all the gains made the previous day. It formed another big bearish candle on the weekly chart. It closed at the lowest level after 26th May. It also erased two weeks of gains. The counter-trend ended and closed below the 20DMA, and the next level of support is at 15,885. It will be very difficult to sustain at higher levels, as the profit booking intensifies when on every swing high.

In a counter-trend, it faced resistance at earlier supports. At the same time, it also failed to cross the 50DMA. The Nifty also declined below the base breakout level and registered a failed breakout. After facing resistance at the 55 zone, the RSI declined below the 45, which is a historical support. The MACD line is about to move below the signal. It is already below the zero line. The 50 DMA and 200 DMAs are in a downtrend, and the distance between these two averages is increasing. As stated earlier, the market is going to experience increased volatility and an unexpected move on downwards. The gap openings will increase now. In any case, if the Nifty closes below 15,885, there is a higher probability of violating the prior swing low. There is no opportunity to go long in this market.

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