After showing weakness in the last few sessions, Nifty witnessed a decisive downside breakout on Monday and closed the day lower by 348 points. After opening on a positive note, the market started with decline in the early part of the session. The weakness got intensified in the mid part of the session. A sustainable upside recovery has emerged from a day's low of 17280 and the market finally closed the day with minor upside recovery note.
A long bear candle was formed on the daily chart with minor lower shadow. The high low range of the Monday's candle was huge around 525 points. We observe a sharp downside breakout of the trend line support at 17750 levels and Nifty closed below the support.
Daily negative DMI has started to widen and the daily ADX has started to turn up from near 18 levels. This pattern signal chances of further strengthening of downside momentum in the market.
Nifty on the weekly timeframe chart has moved below the crucial lower support of 10 week EMA at 17650 levels and is placed lower. This moving average support was holding in the last few months. Further weakness from here could drag Nifty down to the next important support of 20 week EMA around 17200-17180 levels in a quick period of time.
Conclusion: The market seems to have entered into a sharp downward correction. The overall chart pattern as per smaller and larger timeframe is weak and more weakness could be in store in the near term. Having declined sharply from the highs, the minor pullback rally from the lows can't be ruled out in the short term, before showing another round of weakness in the market. Further lower levels to be watched at 17000-16800 in the next few weeks.