We are witnessing market breakdown, BUT the key question is were we able to identify it before it happened!!! If you have been reading this blog for past several weeks, then this should not be a surprise to you as all warning signs were in plain sight and we had plenty of time to prepare, Isn't it!!! So lets see if we can gather more clues about market....
Below chart is telling us to be very cautious, BUT WHY?
- Nifty has dropped below MA(100) and MA(200) - suggesting we are in correction and expect further downside
- McClellan index is flat yet remains below EMA(59) - suggesting to remain very cautious
A clear change in trend is visible in below chart. It appears that Nifty is right a support near 8100 area and a bounce can be expected here. However, the bounce may not be sustainable and Nifty may come back to test support near 7800 area. We do not expect this to happen in next few days but possibly in next 2-3 months.
Based on weekly Nifty chart below, Can you spot a possible pattern formation!!! Try to visualize a very well known Head-Shoulder pattern and see if you can spot it in below chart. We can see the left shoulder between Oct-Jan time frame along with head formation between Jan-Apr time frame. Now we wait to see if right shoulder will be formed which would indicate that market may rally close to 8500 area before dropping back to neck line near 8100 area.
Charts are telling us that in short term we can expect a bounce, however the bounce may not last for long and market will drop down further possibly to 7800 or even 7200 area. Hence its better to remain extremely cautious than be complacent. Lets be logical and avoid HOPE stage which eventually becomes HOPELESS stage.
What does it mean for our Investments?
Market in correction stay on sidelines...
What does it mean for our Investments?
- Mutual Funds - If still invested in equities then you probably don't have a choice but to stay invested and ride the correction which could take a while, be patient. But it would be wise to STOP SIP for now until market stabilizes. If in cash/FDs/liquid funds then wait for next robust opportunity, NO need to hurry.
- Stocks - ONLY invest in strong patterns with good earnings guidance and DO NOT forget to have STOP LIMIT on open positions. When market is in correction, it will drag everything down with it. Check out our trade size calculator to manage your risk along with potential buy candidates watch list.
Market in correction stay on sidelines...