We have seen a huge selling in stocks in the past 3 weeks ever-since we started to trade from 4th Jan'2016. Except 1st Jan'2016 its been a disaster year. All the wealth created in last few months in Mid-caps has been eroded. Large cap stocks are trading at new lows everyday. Every trader was caught on wrong foot and I would say time has come to be real now.
When will this selling stop?
In my view, we are just around that point when all the leveraged positions have been squared off by the retail clients. Today's FnO data suggest that there was a long liquidation from retail clients. This off course was held on for a long period of time and they kept on selling the mid/small caps stocks to keep funding the MTM margins for the FnO positions. This is not new, retail crowd has done this successfully many times in past. (Holding FnO and selling Midcap for MTM loss)
I have a parameter for end of a strong correction which is to see the strongest of the stocks to fall. This pattern used to happen in past. This happened in today's markets too. The strongest of stocks in short - medium term were the Aviation trio - Jet, SpiceJet and Indico. All of them fell hard in last 2 days.
I would say, 50-100 points here and there and we are in for a rebound from these oversold levels on stocks and major indexes. Going forward we shouldn't see a broad-based selling, rather a stock specific up/down move should be seen.
Has this kind of fall happened in past ?
Yes, these kind of falls have happened in past. There were few while we had started the bull market from year 2003 to 2007. There used to a set or sector that used to lead us to a high during that time. Whenever a big market correction used to happen, then new set of stocks used to take us higher on Index.
Now this rise in Index has started from levels of 6300 to all the way to 9100+. Majorly only IT, Banks and Pharma stocks have taken participation in the rise. Now as per me Pharma and Banks will not participate / Outperform the markets going forward and now that big sector rotation has to happen.
What will move up ?
The next leg of up-move can come in IT, Metals & Energy stocks. So much is against them rite now (Metals & Energy) but these stocks haven't made a new low with Nifty. They had participated in the late last rally that happened from 7540 to 7950+ and they haven't touched their lows ever-since. More leaders needs to be checked in any rise we see in Index, the top performing stocks that takes out there short term highs and follows a pattern of higher highs & Higher lows will emerge as next set of stocks.
Sharing few charts now, the charts are self explanatory.
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| Nifty Weekly - 3 Year Chart |
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| Bank Nifty - Weekly |
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| Reliance - Weekly |
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| TCS - Weekly |
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| ONGC - Weekly |
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| JSW Steel - Weekly |
For any suggestions you can email me at indianstockss@gmail.com
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