No upward surprises, time to play safe

The domestic stock market fell just a per cent but, the sentiment suddenly turned in to a gloomy atmosphere. Friday's fall wrecked the some of the large caps and all the sectoral indices weakened further.

The Nifty lost 133.25 points or 1.15 per cent last week and the Sensex closed with 399.22 points or 1.03 per cent loss. The broader index Nifty-500 closed with 153.10 or 1.62 per cent loss.

meanwhile, the Nifty Midcap index lost 4.18 per cent and the Nifty Smallcap-100 index also lost 3.65 per cent.

As we are expecting for the past few weeks the gap of May 20th is filled. The important in factor is that the Nifty closed below the all-important support levels. Now the market reached pre-exit poll levels.

The new government hope rally of almost 1000 points in just 14 days has corrected about 70 per cent in 33 trading session. Pre-budget rally also completed eroded.

As the Nifty closed below the gap support level and broken the downward channel too. Importantly it also has broken the long upward channel of October 2018 onwards.

This is the first time index corrected more than 61.8 per cent of the prior rally since October 2018. The intermediate and minor trends are complete bear grip.

The Major trend still intact as the major swing low of 11108 is protected as of now. Technically, 11108 to 11301 level will be a critical zone for the market in the near term.

The Nifty may fall up to these levels, but the continuation of downtrend below these level are doubtful at the current juncture. We can expect a short term bounce from anywhere in this zone. This bounce important in terms of the size and the time.

These factors are important for future price action. The bounce may be limited to the below 11700 but takes a longer period to move up. So, the minor or a short trend targets are in 11108-11301 and the intermediate trend targets will around 11700.

Means a 400-600 points bounce. This will be a chance to consolidate and regain strength. In any case, the market does not coup up with the strength, the Nifty all the way will test the levels of 10500.

The majority of indicators are also suggesting that the bearish move will continue for another 3-4 days. The RSI isclearly moving in the downward channel in all time frames and closed below the important historical support of 40.

The RSI also closed below the prior weekly swing low which shows the weakness. The MACD line is below the signal line for the second consecutive week.

The momentum is picking up on the downside. For the first time after 19th February, the Nifty closed below the 100DMA. The 200DMA is also is a place at 11125, which is our downward target in the current lower swing.

As I mentioned in the earlier columns, now the 90 scrips are in the bear's grip includes some of the most favoured large-caps. The current earnings season did not give any surprises on the upside.

It is time to be safe than sorry later stage. Cut down your portfolio size to minimal level and stay in cash equivalents.

(The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)