Be Alert About More Declines

PriThe drop in the last three sessions of the week took the wind out of the bulls’ sails, as prices fell sharply and the Nifty broke and closed below the 18,000 level.

People were slightly lulled by the ranged action during the first two sessions of the week, so they were caught off guard by the consistency of the decline that occurred until the end of the week. At the end of the week, the U.S. markets had improved slightly and the Singapore Stock Exchange was trading better, and there is some hope that order will be restored in the coming week.

Will it? Let us examine the evidence to see if this is correct.

For a rally to occur, several things must be in place. First, prices should have declined into support; next, momentum should be in the oversold area; third, sentiment should be stretched on the negative side; fourth, some pattern should be available to suggest a reversal; and finally, time counts should be in place. 

In the case of our market, we have a slight problem because we have the Nifty as the main index while also having the Bank Nifty as the main traded index. Hence, sentiments are expressed through the patterns of the Bank Nifty, while market measures are taken on the basis of moves in the Nifty.

In our analysis, we need to probably look at both and try to take a composite view. But over recent weeks, the Bank Nifty has been out-performing the Nifty and since we analyse the Nifty every time to seek market views, we shall consider evidence on the Nifty chart alone here, with the assumption that the Bank Nifty patterns and signals would not be as bad (on the downside) and better (on the upside) compared to the Nifty.

On the first aspect of dropping down into support, I find that the Nifty is tending to break the intermediate support trendline from the June 2022 lows.

Now there are more ways than one to draw trendlines, and Chart 1 shows a price grid line on the Nifty. Here too, I find that the grid line is broken. Using this very chart, I tweeted earlier last week that prices had taken support on the grid line and would make a brief rally, which they did. But that rally is now reversed, and a fresh break has ensued.