Technicals are indicating that Nifty is headed for the healthy correction this time. The index failed to hold above the 50 percent retracement of the recent recovery seen from 11,185 to 11,618.
Nifty plunged 2.21 percent on September 21, which is the highest one-day fall since May 18, 2020.
Bank Nifty continued to underperform and plunged 3.36 percent to close at 21,290. Bank Nifty has reached the lowest level since August 3, 2020, while Nifty is at the lowest level since August 14.
Nifty attempted a recovery but failed to surpass the high, which was made on August 31. So, the bearish engulfing pattern registered on the week ended September 4 is intact and bearish implications of the same still hold.
The level of 11,794 seems to have become the medium-term top for the Nifty.
Technicals are indicating that Nifty is headed for healthy correction this time. The index failed to hold above the 50 percent retracement of the recent recovery seen from 11,185 to 11,618.
This setup shows that recent recovery from 11,185 was just a dead cat bounce in the overall down-trend.
The 200-days EMA and SMA for the Nifty are placed at 10,832 and 10,775, respectively, which can act as strong support in the current down-trend.
This means we can expect a further downside of almost 5 percent from the current levels.
Indicators and oscillators have turned bearish on the daily charts. RSI has reached below 50 levels and MACD has reached below its signal line.
The previous support of the level of 11,400-11,450 has not interchanged its role as resistance for Nifty and unless we see a close above 11,450, the trend should be considered bearish only.
The trend of the market has turned bearish and it is advisable to cut trading long positions. There are a lot of short-selling opportunities in the stocks and that should be grabbed.
Nifty is likely to see downside targets of 11,832-11,775 in the coming weeks.
Midcap and Smallcap indices are expected to see a sharp fall in the short span of time.
Here are two sell recommendations for the short-term:
The stock has breached the crucial support of triple bottom-placed around Rs 126.50.
The stock price has started forming lower tops and lower bottoms. Short-term moving averages have reached below medium-term moving averages.
NBFC sector has been underperforming Nifty for the last couple of weeks.
The stock has formed a bearish head and shoulder formation on the daily chart.
Bank Nifty has been underperforming Nifty with a huge margin for the last couple of weeks. Axis Bank has a healthy weight in Bank Nifty.
The stock has also broken down from the bearish flag pattern on the daily chart with good volume.
Indicators and oscillators have turned bearish on the short-term 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.