Fridays session was a terribly disappointing one for the market, as global macroeconomic factors forced a lower start to the day. In the end, the Nifty drifted even lower in view of the Reserve Bank of India (RBI) maintaining a status quo on interest rates.
In a highly volatile trade, the NSE benchmark ended losing 282.80 points or 2.67 per cent.
The last two-three sessions have seen the market getting deeply oversold. As we approach the fresh week, we once again approach the market with extremely oversold technical indicators and with couple of factors remaining in favour of a pullback, which now is definitely delayed on many counts.
Despite this, this is still not the time when we can expect the market stabilising so easily.
We expect a shaky start to Mondays trade, but with each further downside, it remains a fact that we are getting even more miserably oversold.
If we take a broader view of the market, it certainly makes sense that there were more than one global macroeconomic factors that acted against us. The spike in US 10-year bond yield, crude oil prices rising past $86 level and strengthening of the US dollar, which resulted in unabated depreciation in the rupee; all of these acted against Indian equities.
As we approach Mondays trade, the Fridays low will be important to watch. We are approaching the session with massive number of shorts in the system.
There were over 42 lakh shares that Nifty added in open interest. The PCR has dropped in the deeply oversold territory.
Brent crude has come off its highs and all possible indicators on the short-term charts are very deeply oversold. We are at the VIX levels that were seen only in early 2016.
Only thing that may cause some more delay in the pullback is the ongoing reaction to global macro developments and the US Yield not tapering off.
It will be technically impossible to determine the exact point at which the market will reverse. However, technical tools do show the extent of which the market is oversold, and it indicates that with each day of a delay in a technical pullback, we are facing the increased chances of a stronger pullback each day.
We recommend staying away from creating fresh shorts and wait on the sidelines and make select purchases once the market show signs of pulling back. Very cautious approach to the trade is advised for the day.
STOCKS TO WATCH:
We can expect resilience in event of a weak session from stocks of Ashok Leyland, Eicher Motors, Tata Motors, Maruti, NCC, Larsen and Toubro, Tata Steel, Nalco, Bosch, Tata Elxsi, HCL Tech and Infosys.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)