The early rebound seen in the benchmark indices on October 4 has got sold into, with chartists fearing more volatility as well as selling pressure this month.
Rohit Srivastava of IndiaCharts has told CNBC-TV18 that the Nifty selloff has threatened the medium-term setup, and on a one-month basis, the index may be breaking on the downside. If a near term bounce happens, one needs to see how much losses we can retrace, he added.
Downside and Volatility
"In October, we should stay prepared not just for more volatility but also for more downside," said Rohit Srivastava. Nifty is down almost 4% from its all-time highs, and lower by nearly 3.6% for the week.
The momentum indicator RSI (Relative Strength Index) has shown a negative crossover on both daily and weekly charts, while the MACD (Moving Average Convergence Divergence) turned negative on the daily charts.
Rohit Srivastava said the reassuring factor is that the trend does not seem to be breaking down in many stocks. "We are getting a sense of safety, and not many charts are breaking down. So, we can allocate funds based on some kind of trend picking."
Srivastava noted that during September, the weakness in broader market was hinting at the market's poor health. However, in Thursday's selloff, the broad market has not fallen so much, he added.
"The good news is that there is no breakdown in terms of long-term trends, but one has to be selective."
Levels to Track
On the Nifty, Rohit Srivastava adviced investors to watch out for the support level of 24,700 and then 24,400 on Nifty.
The Nifty Bank too is at a critical support, and if 51,500 breaks, then we may break the June lows, Srivastava added.
Factors at Play
Rohit Srivastava attributed three key factors that may be adding to the jitters. One, Nifty has broken some key levels during Thursday's selloff, slipping below the 20-DMA. Secondly, on the F&O side, investors are extremely short and FIIs are extremely long. Thirdly, he added that October has seasonally been a weak month ahead of a US election, based on past pattern going back till 1992.
The last three US elections have established that during October, India's stock markets have gone down, only to rebound in the next two months, Rohit Srivastava noted.
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