NIFTY Drops Below Key 20 Day Moving Average Level, Medium Term Correction To 11,800 Likely

After meandering around the 12k mark for several weeks, the NIFTY broke below its 20-day moving average last week, as equity markets grappled with the magnitude of macro weakness highlighted by the RBI in its bi-monthly MPC. Deciding to go against the grain, the central bank defied market expectations by keeping rates unchanged, citing this inflationary concerns while acknowledging that slowing growth remains a top concern.

Friday's trading session witnessed a severe correction, with the frontline index dropping nearly 100 points by the time the closing bell rang.

Last week saw a selloff in Vodafone Idea, after an extended bullish movement since early last month. This came on the back of Chairman Kumar Mangalam Birla's bearish observation that the company would have to cease operations if AGR dues related relief wasn't forthcoming. Yes Bank corrected nearly 10 per cent on Monday after Moody's downgraded it's long term foreign currency issuer rating all the way to Ba3, which is the rating given to instruments that are considered 'speculative' in nature. 

On the technical front, we saw the index falling below its 20-day moving average level, after having stayed above it bravely for the past few weeks. The stochastic oscillator on the weekly charts also showed signs of a bearish crossover. However, it's worth noting that the lower Bollinger Band channel on the daily charts has formed barely 150 odd points lower from current levels, as the index has gone into a sort of squeeze of late. While we're likely to see a further drop down to 11,800 levels in the short term, a correction below that level will probably only be forthcoming in the event of severe and sudden bearish news flow. Until then, the frustrating oscillation is likely to continue and the index is quite likely to contract into an even narrower squeeze before making its next big move. We can only hope it's a bullish one!

 

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