Weekly Action

Nifty, -9.4%; Sensex, -9.2%; Nifty Midcap, -10.8%; Nifty Smallcap, -13.2%; and Model Portfolio, -10.6%.

Market Pulse: Downtrend

Weekly Market Review

Before we discuss the historic dramatic move of today’s session, let us first reiterate how the week went.

On Monday, after floundering for most of the day, markets recovered mildly in the last hour to close with still heavy losses on higher volume. Nifty pierced August 2019 lows and made a fresh 52-week low. Brent crude price has declined sharply to less than $35 per barrel with Russia and Saudi Arabia preferring volume over value strategy.

On Wednesday, Nifty attempted a brief relief rally but failed to hold gains. After opening higher, markets were volatile through the day, and closed flat. As Nifty closed briefly in the green and in the upper half of the day’s range, the action was considered as a day one of an attempted rally.

On Thursday, Nifty gapped lower and remained under heavy selling pressure through the day. After breaching 10,000, Nifty made a low of 9,509 and closed into the bottom quartile. Nifty undercut day one low of an attempted rally and made a new low. The count for an attempted rally was reset.

Today, market participants were expecting a big fall in the early trade after the U.S. and European markets tumbled and SGX Nifty slipped below 9,000. For the first time after the 2008 crash, Nifty was locked down to 10% circuit and trading was at a halt for 45 min. On the way down, Nifty made a multi-year low of 8,555. The pain was evenly distributed between sectors suggesting again that people are selling the market as a whole.

After the trading resumed, Nifty rebound more than 1,500 points from its low. A biggest intraday recovery was witnessed in the market. Today is day one of an attempted rally. From here on, we will look for indices to establish and hold today’s low for two days before looking for a follow-through day.  Currently, Nifty is trading 15.5% and 14.5% below its 50-DMA (11,829) and 200-DMA (11,653), respectively.

We do not predict and decode stories. We will take what the market gives us and continue to monitor unfolding conditions. We continue to remain in a Downtrend and suggest a cautious approach until the general market conditions improve.

It is important to understand that the market selloff has been so sharp and deep that it is a reasonable possibility that we have a sharp bounce like that of today. One should not get deceived by these moves. Instead, wait for the market to show some strength. Sharp, V-shaped recoveries are generally not constructive because most stocks can be hampered by overhead supply issues and that can cause a repulse. We will continue to monitor quality ideas with rising relative strength lines and superior fundamentals that could be set up to buy when and if the market begins to stabilize.

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Author's Bio: 

MarketSmith India is an investment advisory product based on William O’Neil’s CAN SLIM method with model portfolio, pattern recognition, idea lists powered by institutional quality data