NIFTY Index Chart Analysis

Downhill All The Way

NIFTY Index Chart Analysis  : Downhill All The Way

The corona virus crisis now has developed into an issue of economic concern with governments announcing lockdowns across the world. This could lead to an unpredictable level of crisis in the near future. At a time like this, only proactive and practical efforts by those in governance could arrest the speedy downfall of the markets. But before discussing the future direction of the market, we will try to elaborate some positive outcomes with Friday’s decent pullback. For the first time after February 19, Nifty closed above the prior bar high. It also registered one of the biggest single day gains. Interestingly, it retraced 50 per cent from the week’s low on Friday.

The daily cash volumes recorded were greater than the prior day. A 1,050 point gain from the low is not an ordinary pullback. In normal conditions these are the positive things to consider for a short-term bottom in place and look for long positions. There are other factors like the Dollar index indicating that the recent uptrend’s momentum is waning as the RSI shows a clear negative divergence. The Dollar index reached its top of January 2017 top. If this level works as resistance, we can expect positivity in the equities.

But, in a confirmed bear market, these kinds of pullbacks are short-lived. If we look at the 60-minute chart, the Nifty closed exactly at downward channel resistance. Even though it registered a biggest single day recovery, it also recorded a highest weekly fall after the year 2008 financial crisis. The magnitude of the fall is more severe than the 2008 crisis. As discussed last week, we have entered into a Category 3 correction with no doubt. In the past, these category corrections extended up to 50 to 64 per cent from the top. Currently, Nifty has corrected 36.99 per cent.

The bounce of Friday came from the swing low support of December 2016. The Nifty is well below the January 2017 breakout level. The current fall is the biggest in a quarter in the Indian stock market history. At the same time, all the major global indices declined over 30 per cent from a lifetime high in very short period. The speed of the fall has been very brutal in nature. We have been warning since the January top considering the valuations reached a historical high. Now, the market has breached all the major supports and is below the monthly up-trending channel. It also posted more than 38.2 per cent retracement of the 2008-20 super-cycle bull market. At the same time, it also breached the 100 monthly moving averages. As mentioned earlier, the December 2016 low of 7,894 was already breached on Thursday. In any case, the Nifty closing below this level means it will all the way slide up to 6,350, which is an ascending triangle breakout level observed when Narendra Modi came to power. There is a support zone around 7,340-6,825.

Let us now come back to the positivity of Friday’s closing. If Nifty closes above the Friday’s high of 8,883, the targets are open towards 9,589 and 10,131, which are 38.2 per cent and 50 per cent retracement levels of the recent fall. This is the only hope based on Friday’s closing. But if Nifty closes below 8,350, it will retest the prior low and can go below as well. Meanwhile, the SEBI has initiated restrictions on short-selling to curb market volatility and there are rumours of closing the stock market. History says these kinds of measures will further dampen the market sentiment.

In 2001, when SEBI banned shortselling, the Nifty fell more than the pre-ban period. With the nationwide lockdown, we cannot expect earnings to improve in the next quarter. With global recession at our doorstep, this bear market will continue at least for the next few quarters. Do not try to buy anything in pullback rallies. Let bottom formation like flat bases be formed and wait for long and medium-term moving averages to turn upside to find new investment ideas. Cash is king now with all the asset classes losing their shine.