Nifty forms southern Doji candle

The monetary policies of US Fed and Indian Reserve Bank led to the stock market crash in the global and Indian stock markets. Domestic benchmark indices registered weekly losses after November 2020. The Nifty declined by 691.3 points or 4.04 per cent in just four trading sessions. The BSE Sensex lost 3.9 per cent. The broader indices, Nifty Midcap-100 and Smallcap-100, declined by 4.3 per cent and 6.8 per cent, respectively. All the sectoral ended with deep cuts. The Nifty Realty lost 8 per cent, and the other sector indices declined by 4-5 per cent. FIIs sold heavily by Rs12,733.46 cores, and the DIIs bought just Rs8,533.26 cores. The volatility index, India VIX up by 9.45 per cent and settled at 21.25.

Technically, it's broken all the key supports last week as it has broken the 61.8 per cent retracement level. During the last, the market experienced volatility and surprise event risk. The quantitative easing policies of the US Fed and RBI have come to an end. With the hike in interest rates, the markets felt tremors. Bothe S&P 500 and Nifty-50 indices closed below the major support levels and further confirmed the long-term downtrend. On the weekly chart, the Nifty has formed a big bearish candle after November's third week. It closed below the 61.8 per cent retracement level (16604.75) and declined below the 20th December low (a major swing low). The probability of recovery and the chances of forming an inverted head and shoulder have been erased.

At the same time, the 20 weekly average, which acted as resistance in previous weeks, has entered into a decisive downtrend. Even the 30 weekly average is also in the downtrend. This indicates a long-term downtrend is imminent. The distance between 50DMA and the 200DMA is increasing after a death cross on the 18th of April. The Nifty is trading over 4.2 per cent below the 200DMA. As all the moving averages are in a downtrend and the price much below these trend indicators, the strategy must on the downside bias.

On a daily chart, the Nifty has formed a perfect southern Doji candle. On March 7, also it formed a southern Doji and bounced from the oversold conditions. The similarities between these Doji's are formed on a big gap down opening. The previous Doji candle was followed by a bullish engulfing candle, as it opened negatively and closed higher. Currently, there is a probability of bounce, as the Nifty closed below the lower Bollinger band. If a positive closed is no possibility, then a lower closing will lead to a continuation of the current downtrend. Even if the bounce occurred on Monday, it might be a short-living one. Only in case of the Nifty closing above the 50DMA (17060), the bounce will sustain for some period and can test the 17206 (200DMA). Beyond these levels, we cannot forecast, as they are very strong resistance now. The 38.2 and 50 per cent retracement levels (17018 and 17227) of the current downswing are also almost at the same levels. Before these resistances, the gap area resistance is at 16651. The short-covering rise may halt at this level and will attract fresh selling pressure.

The RSI is at 35.29 and near the oversold zone. The 14 periods' weekly RSI is much below 60, and the daily RSI is below 40 is another bearish signal for the market. After July 2002, the weekly MACD line declined below the zero line for the first time. The ADX is rising, and -DMI is higher than the prior high and above the +DMI, and ADX is showing a strengthening bearish trend.

In any case, Friday's low is protected for the next three days and forms big bull candle on a follow-through day, and then, the market status can be changed to Rally Attempt. In this scenario, the Nifty can test the 17060 at maximum.

As projected in the last columns, the Dollar Index (DXY) closed at the highest level after November 2002. As the interest cycle is bottomed out, the equities will be topped. This inverse relationship has been discussed many times earlier here. The bond yields are increasing, and the other asset classes like gold are also in a clear uptrend. The DXY is currently trading at $103.66, and a close above $104 will test the $128 sooner or later.

For next week, the Nifty may witness a technical pullback and consolidate for some time before taking another leg of a trending move. The pullback will give us a chance to exit the profitable positions in the portfolio. There is very little scope for fresh short positions. Friday's low 16340 is a crucial support for the coming days. The market is not conducive to building portfolios and fresh purchases.

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