It took Nifty 41 days to reach 11760 from 10557 – a superlative gain of more than 11%. On the reverse downside journey, Nifty gave up all those gains in just 24 days. A massive 400 points lost in 2 working days. What has substantially changed in a month’s time that the Indian equities have turned negative by such a large extent???
No doubt, US 10 year bond yields surging beyond the 3.1% resistance has spooked the emerging market stock indices. If US economic data continue to outperform (as did ISM non-manufacturing index and ADP September Private Payrolls yesterday), US bond yields could continue its uptrend.
Analyzing the Nifty on the dailies, one notices that the momentum indicators are heavily oversold – 14-day RSI at 26.5, MACD and Slow Stochastics are deep into the negative territory. The upward moving trendline (yellow line), connecting the lows of December 2016 and March 2018, broke today. Nifty also broke below the long term moving averages, the 144-day (blue line) and the 233-day (green line). Observe also the price gap formed today (over yesterday) – horizontal red lines.
In this doom and gloom, my sense is slightly contrarian – Nifty might stage a recovery – at least towards 10800 – 10900 (if not more). Indian fundamentals are still strong and intact, unlike some other emerging market nations.
Even if my technical viewpoint goes adverse and Nifty declines further – those will be genuine buying opportunities for the longer term (large caps and blue chips with 3-5 year horizon).