The market opened negative but soon recouped all the losses in morning trade. However, a severe selling pressure gripped the market later on, and the headline index Nifty came off violently from the high point of the day. Nifty came off over 600 points from the high point and slipped well below 13,200 points at one point. Following a minor pullback in the end, the headline index finally closed with a net loss of 432.15 points or 3.14 per cent.
Such was the brutality of the fall that the India VIX spiked 24.52 per cent to 23.1900. All the F&O stocks, NIFTY50 stocks and Bank Nifty constituents ended in the red. We had been mentioning the vulnerability of Nifty to a sharp and volatile corrective move over the past many days as the unabated up move had made the current up move highly
unsustainable. With this, the level of 13,777, i.e., the high point of the day, has now become a temporary top for Nifty.
ET CONTRIBUTORSThe market has now been pushed into a broad consolidation phase. The equities found a reason to decline in the form of fresh Covid worries and shutdown in Europe. However, from a technical perspective, it had just needed a reason to correct as it was highly overextended and overbought.
We might see some minor pullback in the market given the sharp decline. The levels of 13,400 and 13,435 will act as resistance, while support will come in at 13,250 and 13,065 levels.
The Relative Strength Index (RSI) on the daily chart is 56.36; it has slipped below 70 from an overbought region, which is bearish. It has made a new 14-period low and also shows a bearish divergence against price. The daily MACD has shown a negative crossover; it is bearish and trades below the Signal Line. A large black body occurred on the charts, showing a directional consensus of market participants on the downside.
The previous session has seen some significant shorts also being added to the system. Apart from this, Nifty has ended near its short-term 20-DMA. There are possibilities that Nifty may find some support here and show a mild technical pullback. The market may have found a reason in the form of the renewed Covid fears. However, the index had deviated too much away from the mean and what has happened is nothing but some reversion to the mean.
In the present technical setup, regardless of the fresh Covid fear or not, we recommend avoiding heavy shorts at current levels. Fresh purchases should be done on dips. However, one should be limited to highly defensive and low beta stocks.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)
