Nifty – Bulls Awaiting Fireworks Above…
Author: Brijesh Bhatia (Twitter: @bbrijesh9)
Pune, 21 October 2024: As Diwali approaches, all eyes are on the Nifty, which has recently dipped from a high of 26,277 to 24,567, marking a sharp 6.5% drop. Are the bulls losing steam?
The broader market, too, has experienced significant selling pressure. The DeMAP (Definedge Market Analysis Platform) signals indicate the market is losing altitude.
A deeper dive into the DeMAP chart reveals a concerning trend – a downward slope across major sectors. This decline extends beyond the Nifty50, affecting broader indices such as the Nifty500 and Midcap indexes, with the Nifty Smallcap 100 turning particularly worrisome.
DeMAP
Source: RZone, Definedge Securities
The Nifty Smallcap 100 has now turned negative, raising alarms. Historically, this indicates profit-taking and distribution, typical signs that a market correction might be around the corner. When distribution patterns emerge, they signal a transition from buying to selling, often leading to broader market sell-offs.
But how far could this go?
FII’s: A Growing Concern
The selling pressure is not just anecdotal. Foreign Institutional Investors (FIIs) have been net sellers since October, with total outflows amounting to ₹80,217.90 crores. This sustained selling has created a downward drag on the market.
On the other hand, Domestic Institutional Investors (DIIs) have countered this trend, purchasing a net of ₹74,176.20 crores. But how long can this balance hold? Retail investors, who are heavily invested through mutual funds and other vehicles, are now the key players.
Will retail investors stay patient or panic and exit the market?
Historically, once fear grips the market, the switch from greed to fear can be quick. While fear has not fully taken over yet, we are teetering on the edge. If retail sentiment turns negative, it could lead to another round of corrections across the Nifty50 and broader markets.
After such an extended bull run, the market sentiment is understandably fragile. Investors are growing nervous, and the shift from greed to fear can start slowly before gaining momentum. As we approach the festival season, this tension is particularly heightened.
One key factor in the coming weeks will be how the market reacts to upcoming macroeconomic data and global events. A significant dip in investor confidence could easily trigger more widespread selling, particularly if FIIs continue their exit and retail investors lose patience.
What Do the Charts Indicate?
The Nifty50 Daily 0.25% X 3 Point & Figure (P&F) chart presents some interesting signals from a technical perspective.
Source: Tradepoint, Definedge Securities
Currently, the Nifty is trading at a major support level of the D-Smart Line at 24,557. After hitting a low of 24,567, the index reversed and closed the week at 24,854, providing a glimmer of hope for the bulls.
If the Nifty holds above this support, we could see a bullish reversal if it closes above 25,175, potentially reigniting the bullish trend.
Adding to the optimism, the PMOX (a proprietary momentum indicator) still shows signs of bullishness. The green dot on the chart indicates that the bulls are not entirely out of the game, suggesting there may still be strength in the market.
Momentum remains key to market trends, and as long as PMOX continues to flash green, there’s hope that the Nifty will find its footing and stage a comeback.
What’s Next?
With Diwali just around the corner, many investors are hopeful that the market’s fireworks will match those in the skies. However, caution is necessary. The market remains at a tipping point, and the broader sentiment is fragile.
Much will depend on how FIIs and DIIs position themselves in the coming weeks. Retail investors, often referred to as the backbone of the market, will also play a crucial role. If they hold firm, the market may bounce back strongly. However, any signs of panic could lead to a deeper correction.
In summary, the Bulls are still in the game but awaiting a spark to reignite the rally. A close above key resistance levels, combined with supportive momentum indicators like PMOX, could signal the start of a new upward move. Until then, the market will continue to tread cautiously, with investors watching for signs of the tide turning.
Stay tuned because, as history has shown, markets often find a way to surprise—just in time for Diwali!
Disclaimer: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. This article is strictly for educative purposes only.
As per SEBI guidelines, the writer and his dependents may or may not hold the stocks/commodities/cryptos/any other assets discussed here. However, clients of Definedge may or may not own these securities.
About Writer:
Brijesh Bhatia has over 18 years of experience as a trader and technical analyst in India’s financial markets. He is a well-known face in the business channel as a Market Expert and has worked with broking giants like UTI, Asit C Mehta, and Edelweiss Securities. He is currently a Senior Research Analyst and Editor at Definedge.
