It's time to avoid new buying
Stay cautious and be in cash or equivalents
During the last week, the market has experienced the Black Monday and Black Friday, as global meltdown and the Yes bank fiasco dented the sentiments. The global markets fell into a bear zone with the highest volatility.
The impact of coronavirus still far away from an assessment. The stock markets worldwide are in fear grip. The Nifty closed lower by 212.3 points or 1.90 per cent.
The BSE Sensex also closed 1.9 per cent lower. Nifty Midcap and Smallcap indices closed with 2.5 per cent 4.3 per cent loss respectively. The Bank nifty, Realty, Media and financial sectoral indices fell by more than 4 per cent last week.
As we expected, the market went into the hands of bears during the last week. After consolidating within the Monday range for three days, if fell sharply on Friday and broken all long-term supports. The Nifty closed below the important support of 11040.
Though the Nifty recovered 160 points from the low and formed a bullish hammer pattern, the overall technical structure was damaged. The leading stocks were beaten down dramatically and no support was holding for now.
After falling more than 7 per cent on Monday from prior week's close, the benchmark index consolidated with for three days within the range of Monday's high and low.
With Yes Bank's fiasco, on Friday market witnessed another round of sell-off.
The double breakout on Thursday on hourly was also short-lived. As the major long-term trend indicator, 200 DMA turned down. Currently, the Nifty is trading more than 8 per cent below the 50 DMA and 5.8 per cent below the 200 DMA. The pieces of evidence are signs of long-term bearishness.
The nearest strong support is at 10670-630 zone. In any case, this support zone breaks and closes below on a weekly basis, the Nifty will make the first major swing low since 2008. And also this first indication of the long-term super cycle bullish trend is reversed.
On Monday, if the Nifty trades above the Friday's high and closes above the long trend line support, may result into consolidation. This consolidation is only a countertrend and will help indicators to come out of the oversold condition.
Not only the Nifty, the BankNifty has broken down the bearish rising wedge pattern on a monthly chart. The next level of long-term support is at 23600 levels.
Apart from this, every sectoral index is in bears' grip. There are fears that the 2008 financial crisis can repeat. The reason for this fear is that worldwide the volatility indexes have gone up to 2008 level.
India VIX is also at the highest level and reached to 25.64 level. Even after the 11.60 per cent correction from lifetime high, the Nifty P/E is still at 25.1, which shows the overvaluations in the market.
The correction in the past is limited to an average of 13 per cent or 25 per cent. In 1992, 2000 and 2008 the corrections were extended up to 50 - 60 per cent.
With benchmark indices already fell by almost 12 per cent from the top, we need to watch whether the correction restricts to 13 or stretches further.
If the correction extends, then we can expect the Nifty to correct sub 10000 levels. The situation is scary and unpredictable. As most of the indicator reached an oversold condition, there could be some pullbacks, but these pullbacks are only a resting period for bears.
As the Coronavirus spreading across the world faster than expected, the production, demand and every growth parameter are decelerating.
Now it has become more than a health issue. The shutdown across the developed countries is not a good sign for the world economy.
Be watchful of events and avoid any new buying. Try to take out the profit from the table, stay cautious and be in cash or equivalents.
(The author is a financial journalist and technical analyst. He can be reached at firstname.lastname@example.org)