A sharp bounce back from Friday's lows has taken Nifty past 24,400 in early trade on Monday, however, market participants who track technical indicators are still cautious about reading too much into the rebound, suggesting some more pain, especially in the broader market indices.
Nifty 50 last week fell for a fourth straight week, clocking its longest losing streak since August 2023. The pain in broader market was deeper, with mid and the smallcap indices posting their worst week since December 2022, leading to a wealth erosion of over Rs 20 lakh crore in BSE-listed shares for the week gone by.
Track Monday's market rebound and updates, right here.
CLSA's Laurence Balanco had last week hinted at Nifty 50 testing a long-term support of 23,400 likely in November, setting the stage for the 200-DMA possibly being challenged on the downside.
"Nifty has tested the 200-DMA only on two occasions in the last 18 months, and this could be the third," Balanco had said.
Rohit Srivastava of Indiacharts.com spoke to CNBC-TV18 on Friday, and adviced investors to not attempt to catch a falling knife. "Most people have not seen this kind of decline since Covid-19. We have never felt this kind of pain so people may not relate to it," Srivastava said, adding that the daily selling by foreign investors this month could not be related to anything. The monthly FII outflow has crossed Rs 1 lakh crore mark, and so far this year, FIIs have net sold shares worth Rs 2.39 lakh crore.
"23,700 is the first level on the downside, and 23,200 is the second," Srivastava flagged off, adding that the Bank Nifty may still have some more room to fall.
Highlighting the pain in the broader market, Srivastava pointed out that the number of Nifty 500 stocks so far below the 100-DMA indicates we may be far from being able to call the bottom to this fall. All the major Nifty indices had ended the last week below the 20-week moving average, which meant the rally that started from March 2023 lows has now ended, he said. None of the major indices in this period had broken the 20-week moving average, except Nifty, which did only once, a year ago. Last week's trend has snapped the 18-month long rally, and one need further confirmation before calling the next phase or trend. "It may mean one goes into a multi-month consolidation phase, or we go into a bearish phase. If we get a bounce, will we go back to the previous highs, that is the bigger question," said Rohit Srivastava.
A Bloomberg News report indicated that the 14-day Relative Strength Index — a measure to assess overbought or oversold trend — had slipped below 30 first time in a year, a critical level for markets.
Akshay Chinchalkar, Head of Research, Axis Securities is reading signs of a bounce back this week, based on historical patterns. "A 10-year analysis starting from 2014 indicates that the market has ended higher 80% of the time during this week." The last time this week (44th week in the calendar year) ended in the red was eight years ago in 2016. That said, he caveats that the tactical trend in the market remains down.
Geojit Financial's reading of the chart suggests that the August low of 23,894 may act as a 'downside marker' for all attempts at a rebound. However, it is expected that any pullback to 24,350 may face serious headwind, the note added.
On the broader market, Indiacharts' Rohit Srivastava fears the small and midcap space may be in real danger and can go into a 'corrective or consolidation phase' for a two-year period. Some time back, veteran investor Manish Chokhani too had warned investors against too much concentration in smallcap stocks, instead asking them to balance the portfolio. Chokhani has said that too much concentration in the smallcap space is not good as these stocks can go through severe phases of correction, going down as much as 60-80% when 'unanticipated, sharp falls happen'.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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