Exercise caution as volatility will increase

The stock markets extended their losses for fourth consecutive week. September is one of the worst months in terms of fall.  Sensex lost 2,450 points while Nifty was down 750 points.

The mid and small caps once again reached the March 2017 levels, breaching all supports. The weak rupee, rising crude oil prices, Fed rate hike and on-going global trade war have dampened sentiments. The weakness fuelled by concerns in NBFC stocks on tightening liquidity condition, asset-liability mismatches (ALM) and a cut in lending by banks also led to fall in stock markets.  

The crisis in the financial services sector, particularly in housing finance, is looking similar to the 2008 subprime crisis witnessed in the US. Accidentally, the housing sector in the US is also in a downturn now.

For the first time after 2008, the world economy is in the shaky ground because of the trade war between two big economies, says UNCTAD report.

With crude prices crossing $83 on Friday night, the market is fearful about widening current account deficit (CAD). Technically, Nifty formed a bearish engulfing pattern on a monthly chart. Prior to this, in January 2008 and 2011, Mar 2015, it formed similar pattern. Then, correction was also severe.  With this previous experience with the bearish engulfing pattern, one should be very cautious this time too.

Before taking further direction, market may consolidate between 11165- 10850. Nifty is likely to form a base around the 10,800 levels 
On Friday, Nifty recovered 40-50 points in last 30 minutes. That is an early sign of recovery.

However, it’s better if investors stay away from short positions. From now onwards, volatility will increase and it will be difficult to trade on an intraday basis. As most of BFSI sector ( which has highest weightage in the index) stocks are in the downtrend, be cautious about the upward move. Avoid mid and small cap stocks. Evolve own strategies to protect the capital. (Hans Research Team)