It's better to avoid catching a falling knife

The Indian benchmark indices suffered the biggest one day in terms of points. The global markets also hit lower circuits on amid fears of the world economic recession in the background of coronavirus. For the first time after 2008, the Nifty has made the first major swing low and broken all the key long-term supports.

Even Sensex and Nifty Bank indices are also in the complete bear's grip. As many as 35 per cent of the listed stocks closed below their 52-week lows. The Bank Nifty has broken down the rising wedge pattern, which is a long-term bearish signal.

As the market entered a confirmed bearish long-term trend, it is better to avoid catching a falling knife. Most of the technical indicators are in an oversold condition. To come out of this situation, the market may bounce and enter a counter-trend consolidation. Generally, counter-trend consolidation occurs when a steep fall or rise.

Markets already corrected over 17 per cent in just 35 trading sessions. Now they entered category -2 correction phase, which generally indicates that fall will extend up to 25 per cent from the top.

However, any kind of meaningful bounce Nifty index to the zone of 10,800-11,100 can lead to a consolidation phase. There are many gaps in the current steep fall, which may or may not fill. The next level of support is placed at 10,000-10,100. If the Nifty fails to retrace above the 10,800 levels, the fall will continue till 10,000 level. This level is the last hope for the super cycle bull market.

If Nifty breaches 10000 levels, it will all the way go down to 9,400-9,600 levels. One can consider exiting the existing portfolio if there is any pullback in the index without any base formations.

(The author is a financial journalist and technical analyst)