Technical Bits: Nifty to test 11125 level

As we were expecting for the past few weeks the gap of May 20 is filled. An important factor is that the Nifty closed below its all-important support levels. Now, the market has reached pre-exit poll levels. The hope rally of almost 1,000 points in just 14 days fuelled by the formation of a new government has corrected about 70 per cent in 33 trading session. The pre-budget rally has also completely eroded. As the Nifty closed below the gap support level and broken the downward channel too. 

Importantly, Nifty has broken the long upward channel of October 2018 onwards. This is the first time, the index corrected more than 61.8 per cent of its rally since October 2018. The intermediate and minor trends are completely in bear grip. The major trend is still intact as the major swing low of 11,108 is protected as of now. 

Technically, 11108 to 11301 level will be a critical zone for the market in the near-term. The Nifty may fall up to these levels, but the continuation of downtrend below these level are doubtful at the current juncture. We can expect a short-term bounce ​from anywhere in this zone. This bounce is important in terms of the size and the time. These factors are important for future price action. 

The bounce may be limited to the below 11,700 but would take a longer period to move up. So, the minor or a short trend targets are in 11,108-11,301 and the intermediate trend targets will around 11,700. Means a 400-600 points bounce. This will be a chance to consolidate and regain strength. In any case, the market does not cope up with the strength, the Nifty may all the way test the levels of 10,500. 

The majority of indicators are also suggesting that the bearish move will continue for another 3-4 days. The RSI is clearly moving in the downward channel in all time frames and closed below the important historical support of 40. The RSI also closed below the prior weekly swing low which shows weakness. The MACD line is below the signal line for the second consecutive week. The momentum is picking up on the downside. For the first time after February 19, the Nifty closed below the 100DMA. The 200DMA is also in place at 11,125, which is our downward target in the current lower swing.

As I mentioned in the earlier columns, now the 90 scrips that are in the bear's grip includes some of the most favoured large-caps. The current earnings season did not give any surprises on the upside. It is time to adopt the rather be safe than sorry stage. Cut down your portfolio size to a minimal level and stay in cash equivalents.