Bullish trend maybe coming to an end

Will this be a much rougher week than we have had in the past?

It is and I think yesterday for the first time we saw sense of panic in the market. In the last one hour, the way stock prices came off, the ease with which 4,800 got broken, I think Nifty traders, the bullish traders that are throwing in the towel at this point and the bears are getting more and more active and emboldened with every passing day.

There is a sneaking suspicion that the uptrend, which led us back from 4,500 to 5,200-5,300 has sort of come to an end. One does not want to sound too bearish after a bad spell in the market but there is a little bit of a scare going around and keep your fingers crossed and hope that it does not get too bad. But there are headwinds, which we have been talking about and while the market has been quite resilient in its pullback now I think the rug is slowly moving under the feet once again.

Asian Indices:

The picture across Asia not cracking but most of those markets are weak down about a percent or a bit more than that so for all the markets there is red this morning.

Will we test the March lows, break that?

That is the big question which everybody will be debating “Are we going back to where we came from?” So it’s been quite disappointing this break of 4,800 because already the first alarming signs were there few days back when the Nifty on its way up in technical jargon formed a bit of lower top. It failed to go back to 5,300 levels, it stopped just short of 5,200 and you had a sneaking suspicion that, “is this another of those lower top, lower bottom kinds of formations from a trading perspective.” And it’s turning out like that because 4,800 did not hold and just cruise through that level like a knife through butter.

This near-term lower-top, lower-bottom formation for traders is not a good sign in fact it’s an ominous sign. So I suspect people will be talking about lower levels and maybe a retest of the January and the March lows which has been one school of thought in any case. The other school of thought has been we will not go and retest; we will hold around 4,800 and then the market will probably scale back to the higher end of the near-term trading band of 5,200. But it looks like in yesterday’s evidence that view was not a sanguine view.

Now the big question for the trader is since we have fallen off quite sharply in the last few days, 200-300 points on the Nifty have gone quickly. If there is another gap down this morning or more than 1% kind of a gap down do you go to that 4,600-4,650 levels and then try and rebound once. Even if the market has to go to lower level will there be a first rebound because in the near-term it will get oversold. It is like that ladder formation which people keep talking about, that may or may not happen but that’s the best thing which a trader can hope for that because of the sell down of the last couple of days, one finds an intermediate support maybe 50-70 points lower than here and attempt a pullback to maybe 4,800 level which got violated yesterday. I do not know whether that will hold and this is all like flipping a coin.

All that one can see from the screen is that for the first time in many weeks since that pullback started in March and April one is seeing cracks opening up on the trading screen. We were talking about a resilience a few days back; the market was not falling under bad news but that is changing for the last couple of days because the breadth is worsening and one is seeing cracks open up.

So for the day, one will start sub 4,700 on the Nifty whether the market goes down a whole lot below that and then there is a bit of short covering which pulls it back is something that we will wait and watch for.       

For many weeks now we got away with being a range bound market that was consensus opinion as well, have we sort of stepped back in time and gone back to being over nervous, over stepping the weakness in global markets again?

That constructive phase of the market probably has come to an end. There is nothing more disappointing than a failed rally, it makes people even more nervous than the first fall and I think we probably are in that kind of a zone right now, where people are asking that dreaded question which is, "Was that just a pull back or a bear market pull back or a fool’s rally?", which is now over and you are opening up downsides once again. I don’t know the answer to that but the question certainly needs to be asked because what did we have, we had a 30% fall in the market point to point and after that, the market rallied about 15%, not 15% of that 30% but we rallied from the lows about 15-16%. That gave people a lot of heart that may be the worst is over, a bottom was in place, we could be range bound and then after we have consolidated in a range the market will move further up.

What has happened instead is that, after this pull back which was a smart pull back it got seriously sold into and we are probably with some momentum approaching, where we started this upward move from. Depending on who you ask, people will tell you that this was a bear market rally to begin with and is now getting sold into and that I think is really sent shivers down the spine of traders, when they perceive that it was a rally, it was a false rally and now another big leg down is opening up.

I don’t know how intense that leg down could be but that the near-term lower tops, lower bottoms, the kind of macro news flows we are getting and the fact that global markets are not supportive. All of it is probably making the markets extremely nervous about whether we are going to test the lows and even whether those lows will hold.