Avoid bottom fishing on Monday as Nifty could fall to 11,500 levels: Experts

The Nifty50 managed to defend its 200-DMA on Budget Day but the pain may not be over just yet. Experts feel that disappointing Budget along with muted global cues could cast a shadow on Monday’s trading session as well.

The Nifty50 bounced back after touching 200-DMA placed at 11,654. It corrected by about 4.79 percent on a weekly basis which is among the three biggest weekly falls in the last 8 years.

Finance Minister Nirmala Sitharaman’s second Budget failed to lift market sentiment and carnage may continue in the near term. Investors should avoid bottom fishing at this point of time as the index could further slump to 115,00-11,333 levels before bouncing back.

Foreign investors which were not able to participate on Saturday will react on Monday’s to the Union Budget 2020 which in all likelihood will be on the downside.

The overhang sell-off on Wall Street on Friday, followed by Brexit uncertainty, and the outbreak of Caronavirus could hit global economic growth which, in turn, could weigh on the D-Street in the coming week.

“Economists fear the coronavirus could have a bigger impact than Severe Acute Respiratory Syndrome (SARS), which killed about 800 people between 2002 and 2003 at an estimated cost of $33 billion to the global economy since China’s share of the world economy is now far greater,” said a Reuters report.

Technical experts feel that the first half of the week will be crucial for investors and traders. As long as Nifty50 trades below 12,000 levels, bulls might not be able to make a convincing comeback.

“Nifty failed to hold psychological 12,000 zones and corrected by 300 points which is the biggest fall since October 5, 2018. It has been making lower top - lower bottom and formed a big Bearish candle by settling around its 200 DEMA,” Chandan Taparia, VP Analyst-Derivatives at Motilal Oswal Financial Services Ltd told Moneycontrol.

“Nifty corrected by 4.79 percent on a weekly basis which is among the three biggest weekly falls in the last 8 years. As of now, there is no sign of reversal on charts and thus the ongoing correction may continue towards 11,500 and then 11,333 levels,” he said.

Taparia further added that traders should refrain from bottom fishing at current levels and wait for data to signal for a trend reversal as short as well as the medium-term trend has turned negative.

India VIX moved up by 8.19 percent from 15.56 to 16.84 levels on a weekly basis. VIX continued its surge for a fifth consecutive week and higher volatility suggests bears' grip on the market.

Bank Nifty posted the biggest daily losses since April 2016 and formed a big bearish candle on the daily chart. It kept on making lower lows as the day progressed and closed below its crucial support of 200-Days EMA.

Options data is scattered at various strikes being the beginning of the new series. Maximum Put OI is placed at 12,000 followed by 11,500 strikes while the maximum Call OI is at 12,200 followed by 12,500 strikes.

It looks like the Nifty50 has made an intermediate top at 12,400 for now, but given the fact that we are trading near long term moving average, consolidation cannot be ruled out, suggest experts.

“With budget session’s sharp correction intermediate top appears to have confirmed for Nifty around lifetime high of 12,400 registered on of January 20. However, correction in the short term appears to have overdone and hence some consolidation or bounce from current levels can’t be ruled out as Nifty is hovering around 200-day averages,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Unless Nifty closes above 12,020 levels it remains vulnerable for a sell-off on all rallies and based on our long term trend studies critical support for Nifty has placed only around 11200 levels where some serious buying can be considered. Till then it remains to sell on rise markets,” he said.

Investor confidence has shaken:

After suffering a fall of about 5 percent in the week gone by, trader confidence was shaken, and it is best if they avoid leveraging bets and taking undue risks.

“The weekly and monthly time frame charts as of now suggests a retracement move towards the breakout points and hence, just keep your fingers crossed and hope for the negativity to subside in the coming week. Till then better to stay light and avoid taking undue risks,” Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel Broking told Moneycontrol.

“But yes, the confidence may have been completely shaken with the velocity at which we fell on Saturday. Thus, the first half of the coming week would be quite crucial for our market,” he said.

Chavan further added that the 200-SMA level of 11,654 coincides with 161 percent reciprocal retracements of the rise from 11,929.60 to 12,430.50. In addition, the 50 percent retracement of the entire up move from 10,670.25 to 12,430.50 comes around 11,580.

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