With strong downturn of Nifty, better to wait and watch

THE profit sell-off continued for the fourth consecutive day. The fall in global markets and the lack of buying support from the big players led to a decline. The Nifty fell by 137.2 points and closed below the 15,000 levels. All sectoral indices closed negatively. Nifty Auto and Bank nifty fell by 2.65 per cent and 2.04 per cent, respectively. The recent rally in PSU Bank index finally reversed with a 4.76 per cent fall. India VIX was up by 3.28 per cent to 22.25. The overall market breadth was negative as 1,176 declines and 716 advances were recorded. As many as 131 stocks hit a new 52 weeks high in today's market.

The Nifty formed a bearish engulfing pattern on a weekly chart. It fell by 159 points during the week on profit booking. After forming a new lifetime high at 15,431.75 on Tuesday, it faced the resistance at channel resistance. From Tuesday's high, it corrected 427.55 points or 2.77 per cent. The current weekly price patterns are indicating a caution for the near future.

Four days of negative closing clearly formed a negative divergence in RSI. The Nifty decisively closed below the 5 and 8 EMAs. On an intraday basis, it has broken below the critical support of 14,977 but, finally, it was able to close above this level with a sharp 80 point recovery in the last 30 minutes.

The MACD gave a sell signal by moving below the signal line. The positive directional movement indicator +DMI closed below the ADX and declining, and it formed a negative divergence. Prior to the current week's four-day downswing, the earlier five days downswing from 21st January is 7.84 per cent form the top. Comparing these two swings, the current one may be smaller.

As the Nifty formed a morning star kind of candle and holding key support may result in a bounce on Monday. If the bounce cannot close above at least 15,100 levels, the Nifty may continue its downward journey towards below 20DMA. If the Nifty closes below 14,900 next weekend, the bearish engulfing would get the confirmation. In such a scenario, the Nifty may fall till 14,300. On the upside, only a close above 15,100-15,144 will resume the trend. Till then, better wait to take a long position.

(The author is a financial

journalist, technical analyst, trainer, family fund manager)