Pre-stock market update Wednesday, June 05, 2024: Day after the benchmark indices logged their biggest fall since Covid-era, the focus will be on how the market reacts in the next few trading sessions. Will the equity market enter a period of prolonged consolidation or will the Sensex and Nifty bounce back soon?
The equity bull-run came under severe threat on Tuesday after Lok Sabha 2024 election results failed to meet market expectations.
The S&P BSE Sensex tumbled 5.7 per cent or 4,390 points to 72,079, and the NSE Nifty 50 index plunged 5.9 per cent or 1,379 points to 21,885. The Bank Nifty crashed almost 8 per cent or 4,051 points to 46,928.
Analysts attributed the sharp fall in equity market to fears of possible slowdown in reforms post the poll verdict.
“There is bit of uncertainty as investors are concerned about the slowdown of reforms that had been initiated under the BJP-led government. This uncertainty has triggered a correction in the markets as investors reassess the outlook under the new political landscape”, said Vinit Sambre, Head – Equities, DSP Mutual Fund in a note.
Despite the sell-off, the market maintains its expectation of stability within the coalition, led by BJP, thereby mitigating substantial downside in the medium-term. This is likely to lead to a major shift in political policy with a focus on social economics, which will have a positive effect on the rural economy, said Vinod Nair, Head of Research, Geojit Financial Services in a note.
Meanwhile, Siddarth Bhamre, Head of Research at Asit C Mehta Investment Interrmediates expresses hope that this correction may be short-lived and the long-term bull-run remains intact.
“Though we expect some correction to continue in the market, it would not be fair to consider it as the end of the bull market. Most likely this correction may turn out to be a hiccup in the long-term bull run.” said Bhamre in a note.
On Wednesday at 07:00 AM, Gift Nifty futures quoted around 22,050 levels – indicating a likely gap-up of 100-odd points on the NSE Nifty 50 index.
Fund flow action
Foreign institutional investors (FIIs) were heavy sellers of stocks to the tune of Rs 12,436 crore on Tuesday. Domestic institutional investors (DIIs) too net sold shares worth Rs 3,319 crore.
In the derivatives segment, FIIs increased their short positions even as the market plummeted yesterday. The FIIs long-short ratio in index futures dropped back to 0.15, with net index shorts now at 87.25 per cent.
On the other hand, retail investors hold the maximum longs index futures at 71.04 per cent, and long stock futures at 92.03 per cent.
Global mood
Overnight, the US market ended with modest gains and as weak jobs data raised hopes of a Fed rate cut. Job openings in April fell to a 3-year low, pointing towards a weak economic growth. Dow Jones advanced 0.4 per cent. The S&P 500 and Nasdaq added 0.2 per cent each.
The US 10-year yield eased to 4.33 per cent. Among commodities, Gold futures eased back to $2,350 levels, while Brent Crude Oil dropped to $77.50 per barrel.
Equity markets, in the Asia-Pacific region, traded on a mixed note this morning. Japan’s Nikkei slipped 1.2 per cent. Malaysia’s Kospi gained 0.7 per cent, while Australia’s – All Ordinaries and the ASX 200 indices were up 0.2 per cent each.
Trading strategy for Wednesday, June 05 – Should you be a buyer or seller today? Here’s what market experts recommend:
Sameet Chavan, Head Research, Technical and Derivative – Angel One
Now, with Tuesday’s move, June 03 high of 23338.70 has become a near term peak and unless there is some solid development in coming weeks, it would be difficult to even see the psychological mark of 23,000 in the near term.
Now, for the next 2 – 3 days at least, we are likely to see a wider range for key indices and hence, momentum traders should remain extremely light on positions. As far as levels are concerned, any recovery towards 22,200 – 22,500 is likely to meet with the selling pressure, whereas on the flipside, we may see 21,600 – 21,300 getting retested with volatile swings.
There is a high probability that Nifty may even go on to challenge the ‘200-day SMA’ level of 21000 soon. To sum it up, we may see a range of 22,500 – 21,000 (even lower levels cannot be ruled out) where the benchmark would attempt to spend some time and then set the next path of action.
Ashwin Ramani, Derivatives & Technical Analyst, SAMCO Securities
The volatility Index had hit an all-time high of 31.71 on Tuesday, giving massive discomfort the bulls. Put writers (Bulls) exiting and an additional call writing (Bear activity) was observed at all strikes from 22,500 until 23,000 which led to the sharp down move in Nifty.
Strong call writing was observed at the 22,300, 22,200 & 22,000 Strikes in the Index. The call & put writers fought fiercely at the 22,000 Strike and the option activity at this strike will provide cues about Nifty’s intra-day direction.
On the Bank Nifty all Strikes from 48,000 until 51,000 saw call writing (Bear activity) and put writers (Bulls) exiting, leading to the strong down move in the Index. The 47,000 & 47,500 Strike saw heavy call writing in Bank Nifty. If put writers (Bulls) exit from the 47,000 Strike, Bank Nifty is likely to continue its fall further ahead of the weekly expiry.
Om Mehra, Technical Analyst, SAMCO Securities
This sharp fall on Tuesday resulted in the formation of a strong bearish candle on the daily chart, engulfing the previous swing low from May 13 earlier this year. The Nifty also broke below all its short-term moving averages, as well as the crucial 50-day and 100-day moving averages, indicating potential weakness.
The Nifty is now likely to oscillate within a broader range. A slip below the 21,600-21,500 zone could signal a further weakening of the trend. Conversely, any pullback above 22,100 could drive the Nifty towards the 23,350 to 23,500 range.
The Bank Nifty experienced one of its sharpest declines since the Covid-19 mayhem. This resulted in the formation of one of the largest bearish engulfing candles on the daily chart.
Additionally, Bank Nifty broke below the lower channel of its rising trendline indicating a weak setup. The index also slipped below its 20-day and 50-day moving averages. The immediate support level is now at 46,000, which aligns with the crucial 200-day moving average followed by 46,500. On the upside, resistance levels are seen at 48,000, followed by 48,500.
Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates
Technically, the Nifty confirmed a hanging man candle and remained below it, indicating weakness. The index will find immediate support around 21,800 levels, followed by 21,250, where the 200-DEMA is located. Conversely, in the near run, the levels 22,800 and 23,340 will serve as significant obstacles.
The Bank Nifty sustained below a low of hanging man candlestick pattern, leading to weakness. On the downside, 100-DEMA is placed near 46,350, which will act as key support, with resistance near 51,130 levels.
