Indicators show increased bearish momentum
The Nifty has formed a dark-cloud cover candlestick pattern on a weekly chart, which is a reversal signFor the resumption of an uptrend, it must close above 25220, with fewer distribution days. The 50 DMA of 24277 and the 200 DMA of 24082, will act as crucial supports. In any case of breakdown, market will enter into a decisive downtrend
Israel-Irantension rattled the equity market globally. The domestic market sharply declined on Friday. The Nifty was down by 284.45 points or 1.14 per cent. The BSE Sensex declined by 1.30 per cent. The Midcap-100 and Smallcap-100 slipped by 1.33 per cent and 1.12 per cent, respectively. On the sectoral front, Nifty IT is the top gainer with 3.15 per cent. The Pharma and Media indices are up by 1.39 per cent and 1.19 per cent, respectively. On the flip side, Realty is down by 3.13 per cent, and FMCG declined by 2.29 per cent. The Banknifty and FinNifty are down by 1.91 per cent and 1.86 per cent, respectively. Volatility index, India VIX is up by 3.08 per cent to 15.08. The FIIs sold Rs.4,812.39 crore and the DIIs bought Rs.44,150.72 crore worth of equities this month.
The Nifty has formed a dark-cloud cover candlestick pattern on a weekly chart, which is a reversal sign. The index has been trading in the zone for the last four weeks. The breakout on Monday failed with a big bearish candle on Thursday. On Friday, it tested the support zone and recovered. Now, the 24473-24378 zone has become a lifeline support for the market.
The Nifty closed below the 20 DMA decisively. Trading just 1.82 per cent below the 50 DMA. It is currently holding 8 distribution days. The 200DMA is also just 2.64 per cent away. The Bollinger bands were flattened. In any case, if the index declines below the 50 DMA with added distribution days, it will be negative, and the market will enter a confirmed downtrend. Since May 15th, the distribution volume has been high during the consolidation period. This suggests that the index may be forming a topping formation, following a massive over 15 per cent gain in just six weeks.
The RSI is in a neutral zone on both weekly and daily charts. It formed a negative divergence on the weekly timeframe. If the daily RSI move below 50 (currently at 50.55), expect more downside risks. Even in the massive 15 per cent rise, the RSI has not shown greater momentum. The daily MACD shows an increased bearish momentum. The +DMI has formed a pivot and declined below the -DMI, which is an indication of a weaker trend. The Commodity Channel Index has already formed a top and is declining.
In these conditions, for the resumption of an uptrend, the index must close above 25220 decisively, with fewer distribution days. Watch the 50 DMA of 24277 and the 200 DMA of 24082, which will act as crucial supports for now. In any case, a breakdown of consolidation and this support will be negative, and the market will enter into a decisive downtrend.
The Geopolitical tensions and concerns about oil supply will be major risks now. India depends more on Iran’s oil supplies. The crude oil prices will be negative on the inflation front.
All the sectoral indices are losing momentum. The Nifty India Defence and IT indices outperformed last week. The IT index is improving its relative strength as well as momentum. Focus on this sector. Several Healthcare stocks are breaking out of a bases. The Midcap and Smallcap stocks may outperform the broader market.
(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)
