A volatile week for Indian markets where Sensex and Nifty50 both hit fresh 52-week low respectively. What led to the price action?
It was a devastating week for the bulls on the Dalal street, wherein the domestic markets suffered severe loss amid the global cues. The week started with a downside gap for the Nifty spot and remained under pressure throughout the week.
The sell-off aggravated after the US Federal Reserve meeting, where they announced a rate hike of 0.75 bps. As a result, Nifty not only breached the low of 15,670 decisively, but also sneaked below the 15,200 mark.
We hit a 52-week low last week – what is next for Indian markets? Should one turn cautions, reduce long positions or buy the dip? What does history suggest?
There are two aspects to it. First, there is a technical price breakdown on the charts of Nifty below the swing low of 15,670, which indicates a possibility of further downside towards 15,000 and below levels. With a medium to long-term time frame, even a corrective move towards 14,300, which is a 38.2 per cent retracement of the entire rally from 7,500 might not hamper the bull trend.
Secondly, at this juncture, the FIIs are highly oversold in index futures since their long-short ratio is near 13 per cent. Generally, anything below 20 per cent calls for a bounce-back in the market (Except in the fall of 2020). Thus, we expect the markets to display a relief rally first and then we can reassess the situation.
Which are the important levels one should watch out for in the coming week for Nifty and Nifty Bank?
A couple of weeks back, we have been mentioning about the breakdown below the 15,700 mark and levels like 15,400-15,200. In fact, we even talked of the 14300 mark since that is the 38.2 per cent retracement of the entire rally from 7,500.
The ongoing momentum indicates that we are heading towards the lower levels, but there is one ray of hope for the bulls. The Long to Short ratio of FIIs in index futures is near 11 per cent, and generally, such oversold positions result in some bounce in the markets.
Thus, we expect sharp bounce in the markets once the Nifty starts trading above the 15,500 mark. In that scenario, we might see levels like 15,800-16,200, but that would be a tough nut to crack since that is a major gap area. On the other hand, a close below 15,200 might force the index to breach the 15,000 mark and test 14,800 or lower levels in the coming week.
For the Nifty Bank, the index outperformed by cracking just around 5 per cent and is showing relative strength since the low of 32,000 is still not broken. For the coming week, 32,000 would be crucial support for the index.
A daily close below the same might bring in further pessimism and will open doors for 31,000-30,500 levels. A sustainable move above 33,000 would reinforce the bulls to display a sharp pullback rally in the markets.
Metal and IT sector fell by 8-9 per cent in the week. What led to the price action? Will the weakness continue in the coming week as well?
Both the sectors overreacted on the global cues. Metal stocks tumbled over lockdown concerns in China, while IT stocks have been affected due to a selloff in the Nasdaq. The price action in both sectors indicates exhaustion at this point. It would be difficult to catch a bottom in them, but at least one should start covering their shorts if any.
Where are pockets of value emerging in this falling market?
There are many heavyweights which are screaming for accumulation with a time frame of 3-6 months. Sectors like banking & Finance; select IT names along with some metals and some of the PSU lenders are looking great for staggered buying. We would advise for staggered buying because of the ongoing uncertainty.
On a day when things are falling in double digits – are there any selling rules which investors and traders should follow?
Rising and falling are part of the markets, and these things keep on happening. With regards to rules, nothing else but discipline and patience plays a key role in investment and trading.
Traders need to stick to the basics of following their stop losses and managing their risk, while investors should keep, and vision of longer-term and have patience at such difficult times.
BSE500 index also saw a cut of more than 5 per cent – plunged by about 30 per cent in a week. What do technical charts suggest? What should investors do?
With regards to RBL, we would say that it has broken the lows of 2020 and also started trading in 2 digits from 3 digits. Both these signs are very negative for this stock. We feel that investors holding the stock should exit the same on the bounce which we are expecting in the markets and switch to other names like