Consolidation till Budget likely

The stock market was disappointed with the election results. Though the NDA was forming the government, the BJP did not gain a full majority and needed to depend on its allies. This development dented the equity market’s sentiment. The benchmark index erased all the gains made in the last month. NSE Nifty declined by 1,379.40 points of 5.93 per cent and closed at 21,884.50 points. At one point, Nifty declined by 8.52 per cent, and the Bank Nifty was down by 9.46 per cent. Only the FMCG index is able to close with a 0.95 per cent gain. Except IT all the indices closed with more than 1.4 per cent declines. The PSE is the top loser at 16.38 per cent. The PSU Bank and CPSE are down by over 15 per cent. The Energy, Metal, Commodity and Infra indices declined by over 10 per cent. The IT index is relatively closed with a lesser decline of 1.38 per cent. The market breadth is extremely negative as 2,438 declines and 242 advances. About 271 stocks hit a new 52-week low, and 609 stocks traded in the lower circuit. SBI, BEL, HAL, and Adani Ports were the top trading counters in terms of value.

Nifty has erased all the gains of the last four months. It closed lowest level after March 12. The index declined with a massive volume as the selling pressure was very intense. It registered a fresh distribution day. The index declined below the short to medium-term averages. It declined below the 100DMA, which acted as strong support. On Tuesday, it tested the 200EMA also. From now on, Tuesday’s low of 21,281 will be a crucial support. The 100EMA is at 22,040, which is a short-term resistance. Normally, after a big fall or gain, the index will move in a counter-trend. Don’t expect the market to fall in a straight-line fashion. The RSI declined below the 40 and entered into the bearish zone. The MACD has given a bearish signal. Historically, the 40 zone is crucial for RSI, which acted as a support for several times in the big crashes.

As the index broke the rising channel, it was not the time to be strongly bullish. The index tested the 38.2 per cent retracement of the rally from the October 2023 low. The strategy for now is to watch the stock fall by more than 20-30 per cent from the top and wait for a base formation. On a breakout, these stocks will give great returns. At the same time, do not try bottom fishing. The weaker stocks decline further. Till the General Budget, the market will be in consolidation. The Budget will be a trigger point for the next leg of the trend. Let us be rational on valuations, and opportunities are plenty in this fall.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)