All Sectoral Indices Losing Momentum

Nifty’s lower highs and lows signal a five-year cycle, with possible 25% correction targeting 22,557 and 21,679. Support at 21,281; may extend to 20,291 by May 2025. The next bull market could reach 38,800 within 24-30 months

NSE Nifty began the last week with a bearish note and formed a lower low. The Nifty declined by 228.30 points or 0.97 per cent. BSE Sensex also declined by 0.98 per cent. The Midcap-100 and Smallcao-100 indices gained by 0.04 per cent and 0.15 per cent, respectively. The Nifty Metal is the top gainer with three per cent. All other indices closed negative. The Nifty IT is the top loser with 5.8 per cent. The FMCG is down by 2.4 per cent, and Realty declined by 2.5 per cent, were the top losers. The Market breadth is mostly negative. The India VIX is up by 5.58 per cent to 15.75. The FIIs sold Rs46,576.06 crore, and the DIIs bought Rs49,367.14 crore during this month.

The Nifty has formed a perfect Doji candle on a weekly chart. After last week’s 573 points decline, it was indecisive, continuing the fall, though it was down by a per cent. On Monday, the Index sharply declined by 1.47 per cent and formed a lower low. Mostly, it traded within the Monday’s range. It filled the gap on Thursday. Even though Monday’s low is protected, the Index has formed indecisive and bearish bars during the week. The volumes were higher last week and registered a second successive distribution week.

Infosys, HCL Tech earnings disappointed the street. Reliance announced better earnings after four quarters, but did not enthuse the market much. The earnings season so far is disappointing. With this, the valuations are still expensive. The Budget, Trump presidency, Rupee depreciation, and RBI Policy are near-term event risks. In these conditions, the Index declined by 12.29 per cent from the all-time high, almost completing Category-1 correction. Now, the question is whether it will enter into a Category-2 correction .The history is in favour of it

The heavyweight stocks Reliance and HDFC Banks are trading below the 200DMA. More than 50 per cent of the Nifty stocks are trading below the 200DMA. Major stocks like ITC, Hindustan Unilever, Bajaj Twins, L&T, Kotak Bank, and Asian Paints have been underperformers for the last two years and did not participate in the Nifty’s rally. Importantly, many large-cap stocks, including Reliance Industries, have completed Category-2 corrections, which is more than 25 per cent. The Nifty has formed lower highs and lower lows in all time frames. In fact, the Index has entered into a five-year time cycle.

Earlier in 2010, 2015, and 2020, the Index had corrected more than 25 per cent. Now, post-Covid Crash of 39 per cent, the Index is in the five-year cycle. In any case, the Index failed to bounce strongly from the current levels to the new top, expect the Category-2 correction of at least 25 per cent. The downside targets are placed at 22,557 and 21,679. Below this, the 4th June low of 21,281 is the crucial support. If the Category-2 correction is a reality, the Index will fill the 4th December 2023 gap by testing 20,291. With the 22.78 correction, it will be completed. Mostly, the base formation may happen around this level. Time-wise, this correction will be completed by May 2025. The next bull market will be an impulsive one, and the targets are open to 38,800, in 24 to 30 months.

All the sectoral indices losing their momentum in RRG charts. The IT, Oil and Gas, Auto, and FMCG indices are in the leading quadrant, but lost their relative strength and momentum as well. These sectors may outperform the broader market. The Nifty Metal, FinNifty, and Media indices are in the improving quadrant. Keep a close watch on these sectors. The other sectors are underperformers. As a series of event risks are lined up, it is better to be on the sidelines for now. The Index may test the 50-week average of 23,686 if there is any retracement next week. The 200EMA is also at 23,673 points. As the 50DMA is below the 200DMA, the Index registered a Death Cross, a long-term bearish signal. In this condition, stay highly selective on new investments. Concentrate on trimming down the portfolio size.