After The Bell: Post a terrible Tuesday, what investors should do on Wednesday?

After a volatile Monday (July 13), D-Street witnessed a terrible Tuesday (July 14) as the market hit a two-week low. The Nifty broke below two crucial support levels of 10,800, and 10,700 and the Sensex plunged more than 600 points.

Let’s look at the final tally – the Sensex plunged 660 points to 36,033 and the Nifty declined 195 points to close at 10,607.

After a listless session on July 13, most experts warned that the momentum is waning and it would be good for traders to lighten their positions. The 200-day moving average (DMA) on the Nifty is acting as a stiff resistance and without any big triggers, it could have only led to a whipsaw.

On July 14, weak global cues, rise in state-level lockdowns, rising COVID-19 infections across the globe, and muted June quarter results are some of the factors that spoiled the party for the bulls.

The Nifty appeared to have registered a breakdown from its six-day old consolidation zone present between 10,850-10,676 levels. Given the fact we are trading near support levels, a technical bounce back could be on the cards.

The next big support is placed at 10,560 levels, which acted as a crucial support on July 14 and on July 3 when the Nifty recorded an intraday low of 10,562. The Moving Average Convergence Divergence (MACD) also registered a sell signal after the market breakdown.

“With this consolidation breakdown, the Nifty may see a multi-day downswing with initial targets present around 10,450 levels, but eventually a bigger target into 10,200-10,100 zone can’t be ruled out for this leg of the downswing,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

“Bigger downsides should not be ruled out unless Nifty recoils and closes above 10,800 levels in the next one or two days. A mild bounce or consolidation in next session can’t be ruled out, but eventually this support may also get broken down as many technical parameters are favouring the bears,” he said.

He advised traders to remain short with a stop above 10,755 levels on a closing basis for a target of 10,200.

Ajit Mishra, VP - Research, Religare Broking: We’re not surprised by the fall as markets were signalling exhaustion at the higher levels. Indications are in the favour of a further decline and Nifty could test 10,500 levels.

Though the global markets are still buoyant, rising cases in India have raised fears of the imposition of lockdown in certain parts, which could dent the pace of recovery.

We advise continuing with the stock-specific trading approach and accumulating defensive on dips.

Nagaraj Shetti, Technical Research Analyst, HDFC Securities: On the daily chart, we observe a formation of a rising wedge type pattern, which has been developing since past three-to-four months. Now, the range of Nifty is getting narrowed at the upper levels of that pattern and Nifty is showing a crucial reversal pattern near the swing high of 10,900.

The upper area of 10900 is a strong resistance as per the study of long term charts (resistance as per change in polarity) and the Nifty turning below from that key resistance could indicate more weakness for the market ahead.

The short term trend of Nifty is down and the reversal from near the high of 10,900 is likely to bring more weakness for the market ahead. The next downside levels to be watched at 10,350, which could be achieved in the next one week. Immediate resistance is placed at 10,700.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities Buyers are extremely cautious and do not want to make any major commitments until the conditions are favourable in global markets. If the markets are really strong, the Nifty will not be able to go below the 10,500 level.

On the higher side, 10,750 and 10,800 will be the biggest hurdles. We think the Nifty should consolidate between 10,500 and 10,900 levels before falling further.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.