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The market witnessed a sharp sell-off after hitting new milestones and we are seeing the first sign of distribution in the market as the Nifty and Sensex ended with the mild cut but the real pain was in the broader market because the Nifty Midcap index ended with a cut of more than 2%. The fall was led by the names who were top performers in the last few days like IRCTC and Tata Power. Heavyweights like Infosys, HDFC Bank, Reliance, and LT kept the market higher however FMCG giants HUL and ITC were top losers in the index. Lower volume growth put pressure on HUL while ITC witnessed a cut of more than 6% after govt constituted an expert panel on future taxation policy for tobacco.

Technically, Nifty witnessed an opening red Marubozu candlestick pattern and ended below the 18500 mark which is the first sign of worry. However, 18350-18300 is an immediate support zone; below this, it is vulnerable for a move towards 20-DMA which may coincide with the psychological mark of 18000.

Bank Nifty is also facing resistance at the psychological mark of 40000 whereas 40000CE holds the highest OI for both weekly and monthly expiry and that may lead to some selling pressure from here but real pressure will be visible only below 38500 level however if it manages to sustain above 40000 mark then we can expect another short-covering rally towards 40500/41000.

The biggest issue in the market is that the current rally is not backed by institutional investors and there is a kind of euphoria in the market especially in F&O stocks where you can easily find daily one or more stocks with more than 10% gain. The market is not charitable enough to make you easy money for a long time, therefore, there is a risk of a short-term correction in the market to take out weak hands and that correction could be sharp especially in individual stocks.

The long term outlook of the market is bullish where the intermediate corrections will be the part of this journey and I think any meaningful correction will be healthy for the market. Long-term investors are advised to stay invested in the market where any meaningful correction should be taken as a buying opportunity to enter into quality stocks. Short-term traders should remain cautious and be very selective as there is a risk to get trapped at higher levels.

If we talk about global cues then bond yields, crude oil, and other commodity prices are rising continuously and inflation is still a cause of worry while macro numbers are not encouraging. Markets are not taking note of these issues as we are in the strong bull run but these issues can cause a correction at any point of time.

IRCTC witnessed sharp fall in today's trading session after hitting a record high of 6396. The fundamentals are still strong but there is valuation concern after a steep run and there was a clear speculative move as it was easy to make money for the traders every day so we are seeing a technical correction where the psychological level of 5000 is immediate support but there is a risk that it may slip below this and may head towards 20-DMA which may coincide with 4500 level however 4000-3800 will be a critical demand zone to take fresh buying positions.

(Santosh Meena is head of research at Swastika Investmart)

 

 

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