Representative image | Source: Pixabay
Nifty nosedived more than 3 percent with heavy volumes on December 21. Bank Nifty underperformed by plunging more than 4 percent.
For Nifty and Bank Nifty - both - this was the highest single-day fall since May 18, 2020.
Nifty breached the crucial supports of 8-day EMA, 13-day EMA and 20-day SMA. Bank Nifty violated the crucial support derived from the upward sloping trendline on the daily chart.
Last week, Bank Nifty ended up forming a Doji candlestick on the weekly chart, which created the chances of trend reversal after a prolonged uptrend.
The fall registered on December 21 in Bank Nifty has confirmed the short-term bearish reversal. There has also been the development of negative divergence by RSI oscillator on the Bank Nifty daily charts, which has now got the price confirmation, too.
Bull market corrections usually happen sharp and swift; it also consumes less time.
This correction seems more like a typical bull market correction, which could continue to be there for a while.
Nifty is expected to decline further towards 12,750-12,800 support, derived from an upward sloping trendline, adjoining major troughs on the daily charts.
We expect more panic in Bank Nifty, where we can expect a decline towards 27,750 and 26,800-odd levels.
Intraday bounces should be utilised to initiate fresh shorts in Bank Nifty. Unless Bank Nifty closes above 30,400, the short-term trend would be considered bearish.
Resistance for the Nifty is seen at 13,600-odd levels.
Sectors like FMCG, pharma and IT can outperform in this scenario. On the other hand, we expect finance, cement, auto and metals to underperform from here on in the short term.
Banking and finance carry more than 40 percent weight in the Nifty and that is why we should not expect bigger performance divergence between them.
Markets have entered the short-term downtrend. We cannot rule out the possibility of a further sell-off from the current levels.
One should remain bearish in Nifty unless we see a close above 13,600 in Nifty and 30,400 in Bank Nifty.
Here are three sell calls for the next 2-3 weeks:
Hero MotoCorp December Future | LTP: Rs 2,980 | Target price: Rs 2,800 | Stop loss: Rs 3,100
This stock has breached crucial upward sloping trendline support on the daily charts. Short-term moving averages have come down below medium-term moving averages.
Indicators and oscillators have turned bearish on the hourly and daily charts. The auto sector has been underperforming for the last couple of weeks.
Axis Bank December Future | LTP: Rs 578 | Target price: Rs 530 | Stop loss: Rs 600
Bank Nifty has witnessed a breakdown on the short-term charts. Axis Bank has developed moving average bearish crossovers.
The stock closed at the lowest level since November 9, 2020 and has breached the last six week’s low.
The stock price has formed a lower top and lower bottom formation on the daily chart.
Ramco Cement December Future | LTP: Rs 791 | Target price: Rs 745 | Stop loss: Rs 827
The cement sector started getting distributed much before the Nifty and the sector has been underperforming for a while.
This stock plunged more than 6 percent with heavy volumes on December 21. Indicators and oscillators have turned bearish on the hourly and daily charts.
(The author is a technical research analyst at HDFC Securities)Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.