Why is Equity market falling? By Ashish Kyal in Economic Times section of Navbharat Times!

Pressure on Indian equities can continue for few more weeks!

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

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In the previous week sharp sell off was seen in Indian Equity market and major index Sensex closed on negative note by more than 3% compared to previous week’s close. Weekly and monthly closes provide important information about the overall trend of the market. Previous week, Monday started with a strong Gap down opening on Sensex and the selling pressure continued till Thursday. It formed not only bearish weekly bar but bearish monthly bar as well.  More importantly, prices have closed below the December month’s low. This negative bar on monthly chart was last seen in August 2013. This has turned the monthly as well as weekly trend from sideways to negative. Also this strong selloff was in lines with our technical studies that showed lack of momentum and strength on upside and more number of stocks moving down even if index was near new highs.

NSE Advance decline line is a simple technical indicator which shows the overall breadth of the market. Even when Sensex was near 21400 levels this indicator was moving lower indicating more number of stocks were closing negative as compared to advancing stocks. This is known as negative divergence and it warned about weak upside momentum.

World Markets:In the previous month, DJIA showed a fall of more than 950 whole points from the lifetime high of 16585. Along with this other developed markets like FTSE (UK), DAX (Germany) and CAC (France) deteriorated by more than 6%. India was already underperforming and the selloff in developed and other emerging markets should put more pressure on Indian markets.

Banking index under pressure: In the start of January Sensex made high of 21330 whereas Banking index failed to move above the previous high of 12000 which was formed in the month of December 2013 and moved lower sharply. PSU banks like SBI, PNB, IDBI, had seen strong selling pressure in previous week. RBI governor Mr .Raghuram Rajan surprised most of the economists with repo rate hike by 25 bps to 8%. This did not help banking stocks which were already under strong pressure. As long as 11000 is intact on upside in Bank Nifty, this sector can continue to be in downtrend.

Week ahead:Taking into account the perfect sync of developed and developing markets, declining advance decline ratio, weakness in broader market, negative weekly and monthly close we think Sensex short term top is in place. This week we can expect sideways to negative action to continue. On upside 20900 should act as strong resistance which was previous support (polarity reversal) and on downside 20150 is very important support level from where Sensex has bounced back twice in November 2013. During downtrend volatility can be high, so trade cautiously and systematically!

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