Traders on the Street are comparing this fall with the bear market of 2008 but, the technical structure suggests that things are even worse.
Fundamental data shows market could go into recession and Nifty may touch 6,500 in next 6 months but now the parameters show that the economy may enter into depression period (where GDP turns into negative territory, means it could be in between -1 percent and -5 percent) and the period could be quite long in comparison to slowdown/recession period.
It may be 2 years or more and in this period, Nifty is likely to touch 5,500 and the stocks are likely to be available at 10-50 percent (depends upon small cap-large cap) discount from their peak.
The good thing is the reason of recession would be coronavirus. However, depression territory would be due to an extreme drop in crude oil prices (likely to touch $12–15 per barrel) and there is again a chance of an acceleration of the US-China trade war. Probably, it would not convert into great depression (where multiple economies deliver drop in GDP by 15-20 percent) because tailspin crude oil prices affect many major economies but at the same time, it would be positive for emerging nations. So, be cautious, try to keep more patience and be ready to invest in lower levels.
The euphoric phase of the last three years seems to be taking a turn and bulls need serious attention at this juncture. Having a glance at the long-term charts, it's quite evident that the bullish structure is intensely damaged. Many sectors have developed a weak technical setup and are contributing to the fall.
Auto, banks and financials and respective components are acting as major culprits in Nifty fall. The current setup suggests that the ongoing downtrend is unlikely to end soon and the next few months likely to favour bears only.
Traders on the Street are comparing this fall with the bear market of 2008 but, the technical structure suggests that things are even worse. There are a few points which need the attention of market participants.
1. Monthly RSI registered the low of 36.40 in 2008 whereas in recent fall we have witnessed the lifetime low of 30.3 approximately which clearly indicates that the momentum of fall is much higher than in 2008.
2. The fall of 2008 was accompanied by periodic pullbacks but the recent fall has registered three consecutive red candles on monthly charts with no sustainable pullback
3. Long-term rising trend line breakdown originating from the lows of 2008 suggests more weakness in the coming days.
Apart from this, the prices are trading below 20 months moving average for the first time since 2016 and medium-term support levels. To put things into perspective, it's quite apparent that bears are unlikely to give up easily and Nifty50 will remain to sell on rise for the next few months.
As we are going through the first phase of fall and trading in a highly oversold zone, the sharp pullback at various levels will not be ruled out but eventually it seems we are heading towards the level of 6,825 and 6,280. Medium-term resistance is placed at 10,100 and any rise in price till this level should be taken as fresh selling opportunity.
(The author is Senior Research Analyst at Rudra Shares and Stock Brokers.)Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.