Technical indicators hint at more pain ahead

Mumbai: Technical indicators are pointing at more pain for India’s stock market after the 3% plunge on Monday with world markets on the edge on account of the geopolitical tensions and concerns over aggressive rate hikes by the US Federal Reserve.

The Nifty fell below a crucial support of 17,000, while NSE’s mid- and small-cap indices breached their 200-day moving averages (DMAs), a long-term trend indicator, suggesting further weakness. The silver lining for the Nifty is that it still closed above the next big support of 16,800-level and above its 200 DMA.

“Buying emerged multiple times around 17,000, but that support was breached. When important supports are breached then the index tends to move down for a while,” said Siddarth Bhamre, director-alternative investments and research at InCred Equities. “We were optimistic, but after the breach of 17,000 it would be better to stay light in the market.”

The Nifty ended down 3% at 16,842.80 after hitting a low of 16,809.65 during the day.

The index came close to touching its 200-DMA of 16,788.84 for the first time since September. The 200-DMA is a crucial indicator to watch out for as it gives a trend of the last one year of the stock, and 200 is roughly the number of trading days in a year. When an index or a stock falls below the 200-DMA and stays below, it is considered a sign of bearishness.

Out of the 50 constituents in the Nifty, 29 are below their 200-day moving averages. The outlook for mid- and small-cap stocks have turned bleak. The mid and small-cap indices on the NSE breached these long-term averages for the first time since July 2020.

Analysts warn of a deeper correction if Nifty breaches 16,800 on the downside with some expecting the Index to go as low as 16,200. In the past few weeks, the index has rebounded after hitting the 16,800-levels.

“The initial downside targets to be watched are around 16,500 levels and next is at 16,200, which could be achieved in the next couple of weeks,” said Nagraj Shetti, senior technical research analyst, HDFC Securities. “Any attempt of a pullback rally could find strong resistance around 16,950-17,000 levels.”

Analysts are advising traders against betting on the market direction aggressively with the volatility index, or VIX which measures the market’s perception of fear in the near term, spiking 23% to 22.98.

“If the VIX moves above 24 levels, it is likely to result in more nervousness,” said said Ruchit Jain, lead research analyst, 5paise.com. “It is advisable to stay light on positions and avoid aggressive trading.”

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