The markets can see some pullback from the range of 10,800-10,850. Earlier support of 200-DMA can interchange its role as a resistance going forward for the Nifty.
The Nifty is placed below its 50, 100 and 200-day moving average (DMA), indicating a medium-term bearish trend. Pullbacks are part of the bearish markets, but, they might result in dead cat bounces, Vinay Rajani, Senior Technical & Derivatives Analyst, HDFC Securities, said in an interview to Moneycontrol’s Kshitij Anand.
Q: Nifty broke below crucial support levels this week and was almost on the verge of turning negative for the year 2019. Since the Budget day on July 5, investors have lost more than Rs 13 lakh crore on BSE. What is the way ahead?
A: The Nifty50 has recently breached the crucial support at its 200-DMA, which is currently placed at 11,555. The Sensex and the Bank Nifty also breached their respective 200-DMA support.
The Nifty50 has witnessed a correction of more than 10 percent from its all-time high registered on June 3, 2019.
We feel that the short-term support for the Nifty is in the range 10,800-10,850 levels, which happens to be the 61.8 percent retracement of the entire swing seen from 10,004 (October 2018 bottom) and 12,103 (all-time high made on June 3, 2019).
The markets can see some pullback from the range of 10,800-10,850. Earlier support of 200-DMA can interchange its role as a resistance going forward for the Nifty. So, the first hurdle or crucial resistance for the index in this week comes at 11,155.
The Nifty is currently placed below its 50, 100 and 200-DMA, indicating a medium-term bearish trend. Long-term trendline adjoining bottoms of February 2016 and October 2018 has been violated on weekly charts. Pullbacks are part of the bearish markets. But, they might result in dead cat bounces.
The Nifty50 has been falling for the last five consecutive weeks, and individual stocks have witnessed a sharp fall during the same time. Oscillators have reached oversold zone on short-term charts, so, a pullback from this level in the Nifty cannot be ruled out.
We believe that the market can see a pullback before going further down. Our advice on the market is to utilise pullbacks to cut long commitments. Far resistance for the Nifty is seen at 11,300-odd levels.
Q: The bigger carnage was seen in the small & midcaps space. The S&P BSE Midcap index has plunged more than 20 percent, and the S&P BSE Smallcap index is down 27 percent from their record high levels. Can we say that broader indices are in a bear market?
A: Yes. Going by theory, if the index corrects by 20 percent from the top then it is into a bear market.
In 2008, when the Sensex breached its 200-DMA for the first time, 54 percent of the all BSE listed stocks were trading below their 200-DMA.
In the current scenario, the Sensex breached 200-DMA for the first time on August 1 and on that date, 83 percent of the BSE universe was trading below 200-DMA.
This development answers the question of how much performance difference has been there between largecap and mid-smallcap indices since January 2018.
The Nifty Smallcap index is down by more than 43 percent, while the Nifty is down by only 10 percent from their respective all-time highs.
If we normalise the data since the inception of the NSE Smallcap index, then the spread between Nifty and Smallcap index is at the highest levels.
Q: Mistakes which one should avoid at a time when markets are falling?
A: Yes, at a time when everything seems to be heading south, investors should avoid making these five crucial mistakes:.Catching a falling knife
• Trading against the trend
• Buying stock just because it has fallen heavily
• Concentrated buying by ignoring Diversification
• Buying desired stocks at one go or lump sum or one shot rather than accumulating in a phased manner
Q: FIIs are certainly fleeing India after the recent tax surcharge –what are the kind of levels you are looking at for December 2019? How will the next six months pan out for D-Street? The brokerage firm Phillip Capital slashed target price for Nifty for March 2020 to 11,300 from 12,200. Are you also reworking Nifty targets?
A: Fundamental and technical developments are such that we have to lower the Nifty targets for the benchmark indices. On the negatives sides, FIIs’ outflow and trade war escalation would continue to hurt the sentiments.
On the positive side, good progress of the monsoon and lower crude prices would provide some cushion at lower levels.
We are of the view that the Nifty could be in the range of 10,800-11,000 in December 2019.
Q: More than 300 stocks trading below 200-DMA include names like MRF, 3M India, Maruti, Dr. Reddy’s, Britannia Industries, Bajaj Auto, NIIT Tech, RIL and Lupin. Are they worth a buy for a long-term holding horizon? Or, should investors prefer stocks trading above 200-DMA?
A: Well, 200-DMA is not the sole indicator to decide on the trends for investments. There could be a lot of whipsaws while tracking 200 DMAs.The Great Diwali Discount!
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