Markets In Oversold Zone

Dalal Street is under serious sending pressure. Market breadth is extremely negative, as there are only 255 positives. All the sectoral indices are deep in the red. The benchmark index Nifty declined by 345.55 points or 1.47 per cent and closed at 23,085.95 points. The Realty index is the worst hit with 6.47 per cent. The Media, Microcap, Nifty Junior, Smallcap, and Midcap indices declined by over four per cent. All the indices declined 1-4 per cent on Monday. Only the Private Bank index, which is down by 0.87 per cent, is the outperformer today. The India VIX spiked by 7.26 per cent to 15.99. The market breadth is extremely negative as 2,525 declines and 326 advances. About 429 stocks hit a new 52-week low, and 348 stocks traded in the lower circuit. HDFC Bank, TCS, Reliance, Zomato, and Aegis Logistics were the top trading counters in terms of value.

The Nifty broke the previous low and made a new lower low. Now, the index is traded at 4th June levels, the election results day. The fall is now 12.29 per cent from the 27th September all-time high. The index almost completed the Category-1 correction. If the Nifty closes below 22,850, it will enter into the Category-2 correction, which is 25 per cent from the top. Earlier, the index corrected over 25 per cent in 2010, 2015, and 2020. Now, we are in the five-year cycle. The previous major correction after 2020 is October 2021- June 2022, which is 34-week long and an 18.36 per cent correction. Now, we are in 2025, the five-year cycle. The present correction is already 15 weeks old. So, the next 19 weeks or 4-5 months is challenging for the market. If the market corrects 20-25 per cent from the top, which is roughly 20,000-21,000 zone. The mid and Smallcap stocks will suffer most, and we are already witnessing the carnage in this space. We expect the present correction to end by mid-May of this year. There are several fundamental factors behind the correction, including disappointing earnings and Rupee depreciation.

The index closed out of the Bollinger bands after November 21, which indicates an oversold condition. All the sectors ended negative, and the market breadth is extremely negative. The Midcap, Smallcap, and Microcap indices were the worst hit, which is a sign of broader market weakness. The RSI (32.29) is in near oversold condition. The index may try to bounce from the oversold region. The expected correction will see many retracements. This retracement will be short-lived. It is not the time to build portfolios. Trim the portfolio size and stay on the sidelines with cash equivalents.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)