The new year began with Sensex and Nifty posting their worst weekly fall in nearly a month, and charts are indicating we may be headed lower in the weeks ahead.
Technical analysts are pointing out that the Nifty 50 has broken below the 50-week EMA of 23,442, which is pointing to weakness ahead. The trend may imply further weakness and selling pressure may widen further.
Speaking to CNBC-TV18, IndiaCharts' Rohit Srivastava said on January 10 that he too sees downward pressure in broader stocks. "The breadth is poor and we are seeing breakdowns, so, we may not be done here." Srivastava expressed concern, suggesting the index may test key levels on the downside in the near future.
Read More: Nifty may re-test October lows by March, says IndiaChart's Rohit Srivastava
"We are headed much lower, and by March, 21,000 is possible (on Nifty)," said Rohit Srivastava, adding that there may be some market bounces in between this fall. However, he said would reassess the levels only in March, and sees further downside till then.
"This market is a silent bear, we are seeing a quiet selloff," Rohit Srivastava added.
On January 10, the midcap index fell the most in over two months, taking a hit of 6%, showing the intensity of weakness in the broader end of the market, which is getting close to November lows. Sectorally, IndiaCharts believes Pharma would be a safe space to protect gains, while the chart of the FMCG index is not looking very optimistic. The Nifty IT index is also at the risk of a breakdown in case of a global selloff.
This phrase of the market selloff is coming at a time when Nifty 50 is seen drifting towards what's is called a Death Cross in technical parlance.
A Death Cross occurs when the 50-day moving average crosses below the 200-day moving average, indicating bearishness in the market. It is not a decisive indicator to be seen is isolation, but a sign of caution ahead.
The Death Cross risks a breakdown of a four-year long trend, said Nilesh Jain, VP- Head Derivatives and Technical research at Centrum Broking.
"The Nifty 50 index is currently witnessing a death crossover, with the 21-day moving average (DMA) falling below the 200-DMA. A close below 23,200 would confirm a weakening trend, signaling a break of the four-year rising trend line that has remained intact since four years. However, the bearish outlook will be negated if the Nifty manages to reclaim the 24,000 level on the upside," Nilesh Jain told Moneycontrol.
Already, more than half (54%) of Nifty stocks are in Death Cross, while a third of mid and smallcap stocks have witnessed it. In a series of posts, financial consultant Alok Jain's Weekend Investing adviced investors to work out an exit plan for stocks in death cross, instead of waiting for a breakeven, "Use it to reevaluate your holdings, manage weak stocks, and find sectors with relative strength," adviced Weekend Investing.
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