Weekly RSI indicates negative divergence
NSE Nifty snaps last week’s winning streak as the global markets’ weakness influenced the domestic market. The Nifty declined by 383.75 points or 1.52 per cent. Only the FMCG index is able to close with a 0.18 per cent gain. All other sectoral indices closed negative. The PSU Bank index is down by 4.73 per cent, followed by the Energy index by 3.53 per cent. The market breadth is mostly negative. The India VIX is up by 13.63 per cent to 15.21. The FIIs bought Rs1401.28 crore, and DIIs bought Rs5545.99 crore in this month.
As suspected last week, the overstretched condition turned into a bearish signal. The Nifty has formed a bearish engulfing candle on a weekly chart. Historically, the index has formed bearish engulfing candles on several occasions at the market tops. In any case, the index closes negatively on the next weekly closing, which will confirm the reversal. Last week, the index added two distribution days, which is also a sign of weakness. It formed the most bearish candle after May last week.
The Nifty has formed an open high, and close is almost a low candle, which shows a strong distribution. It declined by 1.96 per cent from the high. After March 2023, there are no major corrections. All the corrections were limited to 3.8 per cent to 6.85 per cent. The recent correction was 4.72 per cent. It bounced from the 50DMA support. Historically, September month is the weaker month and has given negative returns. During the last 15 years, only 40 per cent of the time, it has given positive returns. In the last ten years, September was positive only three times. At the same time, the index is due for a Category-1 correction for a long period. Which means it has to be corrected by at least 10-13 per cent. The last correction was November 2022-March 2023, which was a 10.90 per cent correction. The two-year cycle correction is also due for now.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)