Bearish tone likely for next few quarters

The global stock markets mayhem is continuing relentlessly. The fall across the markets and asset classes was severe than the 2008 global financial crisis.

As the coronavirus is spreading faster than expected, many countries and cities are announcing the lockdowns. This leads to fears of economic recession worldwide. Even the stimulus packages are not boosting the sentiments of the market.

The Indian markets also slid sharply during the last week. Overall, the benchmark index Nifty declined by 1,209.75 points or 12.15 per cent and the BSE Sensex fell by 12.3 per cent.

The broader indices Nifty Midcap-100 and Smallcap-100 fell by 13.5 per cent and 17.9 per cent respectively. The Nifty Bank lost 19.27 per cent.

All the sectoral indices declined significantly during the last week. FIIs sold Rs51,243.15 crore worth of shares in the current month, which is higher than the 2008 sell-off.

Before discussing the future direction of the market, I will try to elaborate on 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 weeks low on Friday. The daily cash volumes recorded higher 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 to be in place and look for long positions. But, in a confirmed bear market, this kind of pullbacks is short-lived.

If we look at the 60-minute chart, the Nifty exactly closed at downward channel resistance. Even though it registered a biggest single day recovery, it also recorded a highest weekly fall after the 2008 financial crisis. The magnitude of fall is more severe than the 2008 crisis.

As we discussed last week, we entered into a category-3 correction. In the past, these category corrections extended up to 50 to 64 per cent from the top. Currently, Nifty corrected 36.99 per cent. The Friday's bounce came from December 2016, swing low support.

The Nifty is well below the Jan 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 for lifetime highs in a very shortest period. The speed of fall is very brutal in nature.

We are warning since the January top, as valuations reached to the historical high. At the same time, all the major global indices declined over 30 per cent for lifetime highs in a very short period.

Now, the market has breached all the major supports and below the monthly up trending channel. It also retraced more than 38.2 per cent retracement of the 2008-2020 super cycle bull market. At the same time, it also breached the 100-monthly moving average.

As mentioned earlier, the December 2016 low of 7894 already breached on Thursday. In any case, the Nifty closed below this level means it will all the way slide up to 6,350, which is an ascending triangle breakout level when Modi came to power.

Sebi initiated the restrictions on short selling to curb the market volatility after the market closed on Friday. History says this kind of measures will further dampen the market sentiment.

In 2001, when Sebi banned short selling, the Nifty fell more than pre-ban. SGX Nifty fell sharply by 600 points on Friday. With the Nationwide lockdowns, we can't expect earnings to improve in the next quarter.

As the 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. The cash is king now as all asset classes losing their shine.

(The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)