It's not a time to invest in market

The global stagflation worries weighed on the stock market worldwide last week. The benchmark indices of all leading markets nosedived at the weekend. The Nifty was down by 382.50 points or 2.3 per cent. The BSE Sensex is down by 2.6 per cent. The broader index Nifty-500 lost 2.10 per cent. The Nifty Midcap-100 and Smallcap-100 declined by 1.6 per cent and 2.8 per cent, respectively. The only Auto index was up by one per cent. The Nifty IT and Metal indices are down by 2.6 per cent and 2.4 per cent, respectively. The FIIs sold Rs18,814.96 crores, and the DIIs bought 13,086.69 crore worth of equities during this month.

The Nifty ended its three weeks of a winning streak and closed at the lowest level after 26th May. With this fall, last week's Shooting Star candle got the confirmation for bearish implications. It also declined below the 20DMA and ended the counter-trend. After registering a failed breakout last Friday, the Nifty failed to close above the prior day's high. Thursday's surprise rally of 250 points from the day's low was a deceiving move and forced traders to cover the shorts. The current breakdown is exactly meeting the Bearish Flag characteristics, as it was less than three weeks old.

The important thing to understand is that the earlier supports acted as a resistance area last Friday. The index failed to cross the 50DMA resistance too. Both the 50 and 200DMAs are in a clear downtrend. As the Bollinger bands contracted for the last eight days and the index closed below the 20DMA, expect an impulsive move on the downside. The lower Bollinger band is placed at 15832. This level is just below the 38.2 per cent (15892) extension of the Flag pole. As it is already closed below the 23.6 per cent retracement level, expect the above level is the immediate target. The pattern target is actually placed at 14434. The target may be a scary one, but it is a reality.

Now, the question is how much time it will take to reach the target. Normally, it takes the pole formation time to achieve the target after the breakdown. This means in the subsequent 24 sessions, and we will see more ferocious bear attack in the market. As long as the 16,794 is protected on the upside, expect that the target is achievable. The character of the next leg of the fall will be more of gap downs; sometimes, it may open high and close low. It may be similar to the fall from 5th April high to 12th May. The Nifty declined by 2185 points or 12.2 per cent. As we mentioned earlier, the 25 per cent correction is possible in the next two legs of the fall. In the first leg, the Nifty may decline towards the 15300 zone of supports, where the 61.8 per cent Flag Pole is placed. The Nifty may bounce from here to the 16,100 and 16,300 zone before beginning its last leg of fall in the current bear market. This entire process will take about the next 5-6 months. Then expect a base formation in the market. If everything goes well, we can see a base breakout in 2023. Till then, it is not a time to invest in the market.

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