Nifty enters oversold zone

The domestic stock market was under heavy selling pressure. The benchmark and broader indices declined to the new lows. The Nifty registered the lowest closing after 30th July 2021. It declined by 359.10 points or 2.22 per cent and closed at 15808. The Bank Nifty led the fall today with 3.35 per cent. The Fin Nifty and the Metal indices also declined by over 3 per cent. The PSU Bank index is the top loser with 5.39 per cent. The Rupee depreciation of another 19 paise helped the IT index with minimal losses.

Some of the leading stocks closed in positive territory. The Nifty Midcap-100 and Smallcap-100 indices are down by 2.33 per cent and 1.87 per cent, respectively. The VIX is up by another 6.41 per cent. Overall, market breadth is extremely negative as 1785 declines and just 413 advances. The broader index Nifty-500 has a negative breadth with 390 declines and 110 advances. 293 stocks hit a new 52 week high and 297 stocks traded in the lower circuit. Reliance, HDFC Bank and Bajaj Finance was the top trading counter today. FII sold heavily by Rs 5255.75 crores, and the DIIs bought Rs 4815.64 crores.

The benchmark indices decline for the fifth straight day. In the last five trading sessions, the Nifty was down by 874.65 points or 5.24 per cent. Since the last weekly closing, the frontline index has declined by 607.55 points or 3.70 per cent. The index is very near to the 8th March swing low. Now the Nifty is trading 8.25 per cent below the 200 DMA and 6.95 per cent below the 50DMA. Interestingly, the Nifty is 6.34 per cent below the 20DMA, and earlier on 8th March, it was 6.49 per cent.

Historically, the Nifty moves not more than 6 - 6.5 per cent below the 20 DMA, except in March 2020. Generally, whenever the price moves far away from the average, it will go back to the moving average level. The Nifty, which now declined much below the Bollinger lower band, shows the oversold condition in the market. The RSI also declined below the 30 zone, and entered the oversold zone. Currently, the Nifty forms a broadening triangle, the support placed at 15000-15100 zone, which leads to another low. In fact, the Nifty closed below the 23.6 per cent retracement level of the March 2020- October 2021 uptrend. Only in case of Nifty closes above the 15986, it will negate the bearish implications for now. Earlier, in March 2022, it declined below this level, but recovered and closed above it. Let us wait for a close below the 15986-15671 zone of support. Closing below this level, the Nifty will test the 15199 level with minor bounces.

All the sectoral indices were down, the Mid and Smallcap stocks were bleeding. The Smallcap-100 index is down by 28.4 per cent, and the Midcap index by 19.19 per cent from their recent tops. These broader indices underperform the benchmark indices. Currently, the market is not conducive to building fresh purchases.

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