Monday’s downside action in India’s stock market was a notable change from the slow grind higher we’ve experienced throughout August.
The news is this move was at least partially caused by some geopolitical risk and the SEBI margin requirement changes taking effect on September 1st.
Regardless of the reason for this selloff, we’re going to take a look at prices and see how it’s changed our short-term and long-term outlooks.
Before we get into yesterday’s action, I want to address the title of this post. We are, in fact, in a Bull Market. One of the ways we measure that is by looking at the percentage of Nifty 500 stocks are above their 200-day moving average, which is around 70% after falling to nearly zero in March.
Click on chart to enlarge view.
Additionally, the majority of Equity markets around the globe are still trending higher from an intermediate and long-term perspective, so while one day’s action suggests being more cautious in the near-term, it does not by itself constitute a reason to question our longer-term bullish outlook.
Pullbacks are a feature of markets, not a bug. But that doesn’t mean we want to endure every drawdown along the way.
Take the Nifty Mid-Cap 100 Index for example. Prices could correct all the way down to 14,000 and the long-term trend reversal we saw off the March low would still be intact. But do we really want to sit through a ~15% correction if that were to develop? Probably not.
With that in mind, let’s move into some of the near-term action and how we’re adjusting based on it.
Here’s the Nifty 50, which is running into overhead supply near 11,750 as momentum diverges negatively.
Yesterday’s selloff did two things. It confirmed the bearish momentum divergence that’s been building for weeks and it confirmed that there is meaningful overhead supply at this level that we were watching as “potential” resistance.
Also, note the slope of the 200-day moving average, which is flat and signifying a lack of long-term trend. Given that context, it’s unlikely that prices will break out on their first attempt and likely need to endure some backing and filling before their next attempt.Lost Password?