Indian market clearly is in a bear grip as Sensex fell over 500 points in afternoon trade on Friday while the Nifty50 slipped below its crucial support placed at 200-DEMA as well as 10,000 levels for the first time since October.
Equity markets across the globe came under pressure on escalating fears of trade war which could dampen global growth rate, and India will be no different. Wall Street cracked after US President Donald Trump signed a presidential memorandum that could impose tariffs on up to USD 60 billion of imports from China.
China unveiled plans to impose tariffs on up to $3 billion of U.S. imports on 128 products in retaliation against U.S. tariffs on Chinese steel and aluminum products.
Coming back to Indian markets, it looks like Nifty is firmly in a bear grip but the good part is that we have already fallen by over 10 percent from highs; hence, the downside could remain limited. And, not to forget we are still in a bull run and corrections are part of every bull run.
“The Nifty has been in a downtrend for a couple of months, it’s only the acceleration which is happening now to an existing trend. We continue with our initial target of 9700 on Nifty where studies will need to be reviewed,” Shubham Agarwal, CEO at Quantsapp told Moneycontrol.
“The level of 10000 was important due to the fact of highest Put OI existing around that, the level holds firm only if OI shifts doesn’t happen which is not the case since market opening today. Though, we still have a target of 9700 due for Nifty, taking a fresh sell position on futures now may not be favourable with diminishing reward to risk,” he said.
Put writer has already started shifting their positions lower to 9900 and Call writers are aggressive with conviction which is indicated by the fact that they are selling At the Money options of 10000 and 10100.
“The long-term trends are suggesting that this is a multi-month correction inside a long-term bull market and in this correction, as indices are already down by 10 percent and it should be made use by the long-term investors as an opportunity to create or reshuffle their portfolios,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“Beyond 9700 levels, we are not looking at substantial price damage but there is going to be a time-wise correction for a couple of months Once it bottoms out this bull market has one more leg on the upside which should eventually take it beyond 11200 kinds of levels over a period of time may be in next 9 – 12 months,” he said.
What should investors do?
If you are short on the market:
If you are already short on the market that there is no point adding positions as the downside could be limited, instead hold on to positions for a higher target.
“Off late substantial damage was already done to the markets and hence shorting at these levels may not be the right strategy as in our opinion markets are trading at critical support levels placed in the zone of 10040 – 9980 levels,” said Mohammad.
“However, as negative sentiments in global markets are strengthening day by day a close below 10,000 may extend this downswing towards bigger targets of 9700 levels as of now,” he added.
Shubham of Quantsapp said that for traders already holding short positions: The strategy would be to stay put on markets and trail the stop loss to 10150 for an expectation of 9700.
If you planning to go long:
The recent price behavior suggests that Nifty is seeing sell on rallies and any bounceback towards 10200-10250 levels were used to book profits.
“The idea is to use the rallies or bounce back for shorting for lower levels. The important resistance from 10500 is being brought to 10250. So any bounce towards these levels would certainly be an opportune moment to go with intermediate momentum,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.
Shubham of Quantsapp for traders stuck with long positions: Deploy a high yielding bearish options strategy like Put Ratio Back-spread as a hedge to existing positions which will cap further losses on existing positions.
If you are looking to bottom fish:
Long-term investors would welcome such a big fall in the index and can use this slide to buy into quality stocks. Global trade wars have pulled the equity markets down globally, and for India as well the bias has turned negative.
The Nifty has fallen over 10% from highs and has a strong base near 9700 levels. Investors should use the opportunity to buy into quality stocks which are now available at attractive valuations.
“We believe that the correction of close to 10% from the recent highs largely factors in a lot of negatives and is in line with the past two corrections; first one in December 2015 (triggered by interest rate hikes in the US after a gap of almost a decade) followed by dip in November 2016 (triggered by demonitisation and its unknown ramifications),” Gaurav Dua, Head Research – Sharekhan told Moneycontrol.
“Notably, the equity markets recovered quickly in both the incidents after a fall of 10-12% from the recent peak. Thus, we continue to remain constructive on equity markets over the medium term though the volatility is likely to sustain in near term,” he said.
Shubham of Quantsapp said to investors looking to bottom-fish: Wait for 9700 as the level of accumulation and to make additional returns on the intention write Out of The Money Put options with levels of intended buying. “These short puts can later be converted to a cash holding and will reduce the cost of acquisition,” he said.moneycontrol