Is a potential trend reversal on the cards after Nifty 50’s nine day slump?

Since 2015, the Nifty settled in the red for 8 consecutive sessions four times and for 9 consecutive sessions just once.

The Nifty 50 might see a bounce-back from its 9 consecutive session of losses, according to domestic brokerage JM Financial, based on its analysis of daily price returns.

The frontline index might see a trend reversal after closing in the red for the eight previous sessions and trading with losses for the ninth day. "A historical analysis of the daily price return indicates that the Nifty has seldomly closed in the negative territory for 8 or more consecutive sessions. Any such occurrence is followed by an up-move in the index on a 1-month and a 3-month basis," said the brokerage.

Given the historical analysis that the Nifty tends to bounce up in the near term post an occurrence of such an event, JM Financial expects limited downsides in the Nifty from hereon.

Since 2015, the Nifty has closed in the red for 8 consecutive sessions on 4 occasions and for 9 consecutive sessions on 1 occasion.

During the first 8 consecutive negative sessions, in the observed 5 occasions, the Nifty has declined by an average of 4 percent. The maximum decline has been 4.4 percent while the minimum decline has been 3.4 percent. In the current instance, the decline in the Nifty has been ~4 percent.

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Post the occurrence of 8 consecutive negative sessions, within the period of 1-month, the average return on a daily closing high basis stands at 5.4 percent.  The minimum up-move has been 2.6 percent while maximum up-move has been 7.2 percent.

On a technical basis, according to the brokerage, an immediate resistance for the Nifty 50 is placed at 23,810 levels, above which the bearish formation of lower top lower bottom gets negated. Any such breakout would indicate a probable move towards 24,800 and 26,000 levels. Immediate support is placed at 22,500 levels, below which a maximum decline till 21,800 can be observed. However, any such decline should be used a buying opportunity.

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