Avoid long positions amid long-term bearish signs

The disappointing earnings of index heavyweights, rising WPI, and weak global cues caused the domestic equity market's sharp decline. The benchmark index, NSE Nifty, declined by 302 points or 1.73 per cent and settled at 17173.65. The IT index is a top loser with 4.58 per cent. The Fin Nifty and PSU Bank Nifty fell by 2.21 per cent and 2.49 per cent, respectively. The CPSE and PSE indices were the top gainers with 2.39 per cent and 1.14 per cent. FMCG, Auto, Energy and Metal indices closed positively. The VIX is up by 8.72 per cent. The overall market breadth is negative as 1290 declines and 848 advances. About 118 stocks hit a new 52week high, and 122 stocks traded in the upper circuit. Infosys, HDFC Bank, and Tata Power were the top trading counters on Monday.

As expected, the Nifty opened with a big gap down and hanging on the 200DMA. It formed a Doji candle, on the support. It closed below the 38.2 retracement level. It closed 1.76 per cent below the 20DMA. The MACD closed below the signal line, and the histogram shows an increase in bearish momentum. RSI declined to 45 zone of historical support, as three heavyweight stocks decline from 4.7 to 7.27 per cent. Even though the index breadth is 1:1 as 24 stocks closed in the negative zone, heavyweight stocks' sharp decline resulted in the Nifty fall. With the last hour's recovery in FMCG, Auto, Metal and PSU stocks, the Nifty was able to recover over a hundred points from the day's low.

During the day, the index fell below the 200DMA, but the last hour recovery pulled the index and closed just 0.11 per cent above the long-term average. As stated, the Nifty has made an intermediate top at 18114. Currently, the 50DMA is at 17157, and as it declined below the 200DMA with just 7 points, it registered a death cross. In any case, the fall extends, and more selling pressure arises. With this long-term bearish sign, it is time to avoid long positions. The next level of support is at 16893, which is the 50 per cent retracement level. On the positive side, the Nifty opens in positive territory and closes above the 17238, and then we can see the index will try to fill today's gap. It added a distribution day, and the total distribution day count is at three now.

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